Combo loans are available to borrowers of all credit types. Even with a 580 score you may still be able to qualify for the tax and money saving advantages that a combo loan can offer.
Combo loans are available in a wide variety of terms. Most often you will see a term of 360/180, meaning your 1st payment is your regularly 30 year amortized loan and your 2nd payment is a 15 year loan. .
Combo loans are increasingly becoming a favorite loan program for first time home buyers and home buyers who do not have enough money to come up with a down payment. These types of combo loans are commonly referred to as 80/20 loans and 100% financing combo loans. By doing an 80/20 combo loan you are able to buy a home with no down payment required and you are able to avoid the much dreaded PMI, or Private Mortgage Insurance. Private mortgage insurance is a type of insurance that is required by the lender when you do not have at least 20% to apply towards a down payment when you are buying a home. Combo loans can help save you a lot of money when buying a home with little to no money available for a down payment.
Combo loans are available in the traditional full documentation process, but also in the stated income and/or limted doc process for self employed borrowers.
When using combo loans as a debt consolidation tool, be sure to have a plan in place as to where the extra money that you will suddenly have on hand needs to go. Your Mortgage Planning Specialist will be able to assist you in working with other professionals - financial planners, CPA's, etc. - on how best to structure your "combo" loan to take full advantage of tax breaks and increased cashflow.
Combo loans can easily be compared with a single loan by "weighting" the interest rates. For example: Somebody receives a quote for a 100% loan at 7.875%. Sounds good to them. But you want to present a combo loan, an 80/20 to them, and show them how the rate, in the end, compares, although there will be two seperate loans, one with a rate that is seemingly mich higher than wanted. So, you are able to quote them 7.5% on the first loan, and 8.5% on the second mortgage. So, to really be able to line that up agains the first rate (in a rate sense...because you can always compare overall payments if that is the borrowers focus) you can take a weighted average of those two mortgages. So in the case of an 80/20 with a 7.5% and an 8.5% rate, do the following: take 7.5 and multiply it times .8 (80% first mortgage) = 6. Then, take 8.5 and multiply it times .2 (20% second mortgage) = 1.7. Then take the 6 and add the 1.7 to it to see that your weighted average for the 80/20 in this case would leave you roughly with a 7.7% rate. Compare that against the 7.875% that was previously quoted, and here the combo loan makes more sense from a rate standpoint, and most likely from a payment standpoint also.
Besides the most common 80/20 combo loan, there are other combinations that are sometimes advantageous. 70/30 or even 65/35 loans can help you take advantage of the lowest possible rate on the first mortgage, which could make your payments even lower. An experienced loan officer can help you decide which option is best for your situation.
Very often it is advantageous for a homeowner to get a combo loan when the second loan is a Home Equity Line Of Credit.
On a Home Equity Line Of Credit you only pay interest on the amount that is actually borrowed, similar to a credit card but with a much lower interest rate.
For example, if your credit limit is $100,000 and you only have $30,000 out on it, your monthly payment is based on the $30,000. And you still have $70,000 avalable if it is needed for debt consolidation, home improvements or any other reason.
Many lenders now allow loans up to 100% with no mortgage insurance (which is generally required by lenders when borrowing more than 80% of the value of the home on one loan), and more still are providing lender paid mortgage insurance built into your monthly payment, often for significantly less than the combined payment on most combo loans.
· 1 decade ago