Reduce the higher cost of low down payments with a second mortgage piggyback loan

Piggyback financing refers to 80-10-10, 80-15-5, or even 75-15-10 loans. The first figure represents the LTV of the first mortgage; the second figure shows the added LTV of the second mortgage; and the third figure is the percentage of cash you put down. Sellers sometimes agree to carry back this second mortgage. Given the cost of PMI, you may be able to pay the sellers an interest rate of 8 percent (or more) and still come out ahead. As long as you keep the first mortgage LTV at or below 80 percent, your lender may not require mortgage insurance.

(Note: Some homebuyer loan programs do not permit sellers to carry back financing. Such lenders believe this type of transaction increases the potential for LTV fraud, i.e., no seller second mortgage actually exists. The buyer/seller have merely colluded to increase the stated price of the property to gain a larger first mortgage LTV without the lender's knowledge. Also, real seller seconds may cause lenders to question whether you've paid the seller too high a price in exchange for the favorable seller financing. Investment property deals, though, often include seller second mortgages and other types of seller financing.)

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