So I've decided that new construction is out of the question due to the fact that I don't have the time to GC my own project. Next step-look for a fixer upper! My fiancee and I are both out of college 1 year, have paid off our college debts, and are slowly saving for a down payment. Recently we've been researching "piggyback" mortgages which look good on paper, but I'd like to hear from folks who actually have one and what they think of it. We'd like to do an 80/15/5 (1st loan = 80%, 2nd loan = 15%, 5% down payment) on a $250K home which would give us a very manageable down payment of $12,500. That would allow us to have cash on hand for closing plus a "cushion fund" once we're settled in. Of course, I've also read of the option of rolling closing costs into a mortgage in order to have more cash on hand at the end of the sale. Is this something a lender would allow in a piggyback mortgage situation?
The reason we're so interested in this option is the fact that the area we need to live in, dictated by our commutes, is around the Hunterdon/Somerset County border area of New Jersey, which unfortunately is one of the most expensive areas in the state to buy a home. Our target price of $250K should net us a small, older home that is simply in need of major updating (kitchen, bath, facade, mechanicals, etc...), which is why we are concerned with having cash on hand once we are in the home. My fiancee's father is a contractor with a major design/build firm in North Jersey and I have construction experience as well, so we'll be able to do remodeling work at a considerable savings by sourcing materials at cost and incurring little to no labor costs. The less cash we tie up in a down payment and closing costs the better.
All that being said however, I am still cautiously weighing the options. Both my fiancee and I have excellent credit, so what can we expect in terms of interest rates for both the first and second mortgages? I was assuming that they would be in the neighborhood of 6% and 8% respectively. Is that realistic?
I had a piggy back mortgage when I got mortgage about 3 years ago. The main reason I did a piggy back loan was 1) avoid PMI 2) have a lower required monthly payment in the future after the 2nd loan is paid off. My wife and I are DINKs currently but plan to have kids and would like her to work only part-time while they are young, the piggyback worked best for us at the time. I was advised about piggyback loans not from our loan officer but from a friend that does commercial lending for a bank. If you are interested in an excel model that can show you how much you'll pay when, when your PMI goes away if you pay more than the min, etc... Let me know your email address and I can forward it to you. My 2nd mortgage (really just a regular non mortgage loan) was 5.99% versus the 5.25% we got on mortgage.
Really I don't see how if you are doing the same % down for a regular loan versus a piggy back loan the payment will be less initially which is what you are concerned with. Our total piggy back was about $50/mo more (~$150k loan), but once we paid off the piggy back loan the it was $100 cheaper versus a converntional loan. Also note that the piggy back was a 10yr loan, the PMI on a conventional loan would have gone away in 7.5yrs. So you would actually pay a little more per month in yrs 1-10, but less in yrs 11-30.
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