|  Dear
Dr. Don,
We are in the process of buying our first home,
and although we have excellent credit, one of
our problems is the down payment, which will result
in paying private mortgage insurance, or PMI. Do you recommend doing 100 percent
financing divided into two loans (80/20)?
-- Fausto Financing
 Dear
Fausto,
I think a no-equity 80/20 piggyback loan should
be avoided if at all possible. Being able to make
even a small down payment of 5 percent in an 80/15/5
structure gives the lender of the second mortgage
a bit of a cushion, allowing you a slightly lower
interest rate.
Being upside down in a car loan
is one thing; being upside down in a home is quite
another. When you don't put any money down, you're
counting on rising home prices to build your equity
position in the home, at least in the early years
of the mortgages. If you're forced to sell, you
may not get enough at closing to pay your Realtor
and your mortgages.
Homeowners don't like paying private
mortgage insurance because they're paying
an insurance premium to protect the lender. But
those premium payments don't last forever, and
PMI allows buyers with less than a 20 percent
down payment the ability to buy a home with one
30-year, fixed rate mortgage loan.
The Bankrate feature "PMI
industry fights back against piggyback loans"
explains how to decide between a piggyback loan
structure and a first mortgage with PMI.
|
