Twopart mortgage

The two-part mortgage is actually the easiest to arrange—especially if you are unable to obtain the money for a pledge. In this program, the buyer purchases the property with two mortgages: the first mortgage is for 70%-80% of the purchase price, while the second mortgage is for the remaining 30%-20%.

The most common example of this approach is the 75-25 program. The first mortgage is for 75% of the purchase price, while the second mortgage covers the remaining 25% of the price.

  • Example purchase price of $200,000.
  • A first mortgage of $150,000 would be a 75% loan-to-value (LTV) loan.
  • A second mortgage of $50,000 would be a 25% LTV loan.

The first mortgage loan in this two-part plan must be a non-conforming program, because conforming programs require some down payment to come from the borrower. Because the 75% first mortgage is non-conforming, its interest rates will be about 2.00% to 3.00% higher than market rates.

The second mortgage will always have a higher interest rate—especially when they absorb all of the property's equity. You should routinely count on the second mortgage's interest rates to be at least 1% to 3% higher than the non-conforming first mortgage.

However, remember that the borrower can subsequently consolidate both mortgages into one loan—at a lower, market-level rate. Thus, the borrower fulfills both the short-term and long-term goal indicated earlier: purchase the property with no down payment, then refinance to a more cost-effective, profitable loan.

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