Piggyback seconds making a comeback
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Stunning! That’s what I was thinking when I learned this week that for the first time in eight years, big-boy second mortgages are back.
You can now get a fixed-rate second mortgage all the way up to $500,000 bringing just 5 percent to the table. This offers you extraordinary buying power.
For example, now you can buy an Orange County home for up to $1,184,736 with a $59,236 down payment, receiving fairly priced money (not highway robbery rates).
You do a Fannie Mae first mortgage up to $625,500 and a $500,000 piggy-back second for a combined total loan amount of $1,125,500. You will need a 760 middle credit score for sure to get this lean, mean, leverage machine.
Say you already own your home. Go bigger!
You can cash out up to $500,000 by taking out a new second mortgage, allowing you to keep an existing first mortgage of up to $1 million on the first, with a total loan-to-value of 95 percent. You can squeeze out almost all of your home equity if it’s needed. Nice!
Typically, fixed seconds and home equity lines of credit do not exceed about 75 or 80 percent combined loan-to-value.
One to four units are allowed and second homes are allowed under this program. But no rentals.
This financing instrument goes down to a 680 middle score but with less leverage than 95 percent loan-to-value.
Lenders offering seconds and home equity lines typically don’t lend below a 700 middle score, especially when you have less than 20 percent equity or down payment.
Interest rates for this program run from 5 percent to 9 percent, depending on the lowest middle FICO score of all borrowers in combination with your equity or down payment position. And you can get up to 20 years to pay off this fixed second.
The opportunities are endless. You can avoid private mortgage insurance. Once you start looking above a $650,000 loan in Orange County with 5 percent down, good luck getting mortgage insurance or an affordable first for that matter.
If your loan is within the mortgage insurance maximum limits, it’s a good idea to compare payments and costs of a piggy-back second to a loan with mortgage insurance. You may find the loan with mortgage insurance more affordable.
You can avoid having to pay jumbo rate prices by combining a first and second once the total loan exceeds Orange County’s maximum Fannie Mae loan limit of $625,500. And, you can avoid paying agency high balance rates by combining loans when your loan amount exceeds $417,000.
Jeff Lazerson - Mortgage Columnist since 2011