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Piggyback loans

Dr. Don TaylorDear Dr. Don,
I would like to build a house while the interest rates are still low. Instead of using up my savings on a down payment, I have read about piggyback loans. How do you get this type of loan? Do you ask the same lender that is doing the mortgage? -- Jody Joiner

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Dear Jody,
I think you're confusing an 80-10-10 mortgage with a construction-to-permanent financing on a home. An 80-10-10 mortgage is a first mortgage of 80 percent loan-to-value combined with a 10 percent second (home equity) mortgage and a 10 percent down payment. These loans are structured so homeowners can avoid paying private mortgage insurance.

With a construction-to-permanent loan, there is only one loan closing. With some loan structures, there are no loan payments during construction. Most construction-to-permanent loan programs will also allow you to buy a rate lock that is long enough to cover the planned construction phase. The length of the lock, any float-down options and the rate pricing will vary by lender.

Not all lenders offer construction-to-permanent financing. Ask a lending officer at your bank or credit union if they offer this type of loan or can point you to firms in your market that do. You can also work with a mortgage broker. Look for an Upfront Mortgage Broker™ as defined by Jack Guttentag, The Mortgage Professor, after reading this Bankrate feature about selecting a mortgage broker.

 
-- Posted: June 3, 2003
   

 

 
 

 

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