COMBO LOAN or PIGGYBACK LOAN

A combo or piggyback mortgage is another way of satisfying the 20% down payment requirement of mortgage lenders. Combining two separate mortgages on the property you are purchasing creates a combo loan. The first mortgage is created at 80% of the sales price and a second mortgage will bridge the difference between your down payment and the 80% first mortgage. The second mortgage can range from 5 to 20% of the sales price.

There are many advantages to the combo or piggyback mortgage option.  Below are just a few highlights:

Using a Combo Loan to Avoid Private Mortgage Insurance (PMI).

Private mortgage insurance is required on all mortgages where the loan-to-value ratio exceeds 80% which means any situation where you are putting down less than 20% on a purchase or your equity is less than 20% on a refinance. PMI is calculated on a percentage of the loan amount. There are different ways to pay PMI ranging from an upfront payment for the life of the mortgage, or a month-to-month payment that is included in your monthly mortgage payment.

PMI is not tax deductible ● 2^nd mortgage interest is deductible.

Using A Combo Loan to Avoid Unnecessary Bridge Loans.

A bridge loan is any loan that is taken out in order to complete the purchase of a property for which the purchaser does not have sufficient ready cash. The most common bridge loan situation is when you are selling one home and buying another, but circumstances dictate that you have to buy the new home before you can sell the old one. The traditional method for setting up a bridge loan is to take out a loan on the existing property, drawing as much value as possible from the old home, and putting those funds toward the purchase of the new home. When the old home sells, the debt is cancelled out. The problem with bridge loans is that they are expensive and cumbersome. A better approach is to use a combo mortgage on the new property with the second mortgage sized to equal the anticipated net proceeds from the sale of the old home. Then, as long as you can qualify to carry both mortgages, you can close your purchase, then close your sale and pay off the 2nd mortgage. If you are having trouble carrying both notes, you can put the old home up for rental and use the rental income to cancel the carrying charges on your existing home and sell it later after the dust from the new purchase settles. Because the 1^st. and 2nd mortgage in the combo transaction are closed at the same time, the closing costs are reduced dramatically and once again the interest on a 2^nd mortgage maybe tax deductible.

2^nd Mortgage Interest Tax Deductible.

Private Mortgage Insurance is not tax deductible if paid monthly however the interest on a 2^nd or combo mortgage may

be deductible. You will want to check with your tax advisor to make sure.