Comments on: Can a home loan consist of two separate loans combined to cover one loan total?

By: Mary M

Mary M — Mon, 12 Jul 2010 07:33:59 +0000

Yes. Sometimes you need to have two loans. Banks consider Loan to Value (LTV) when approving loans. Most lenders do not lend more than 75% LTV (example: if your property is worth $100,000 you cannot borrow more than 75% of that value from them, which would be $75,000). Some lenders will go to 80%, but anything above that would require mortgage insurance. Some lenders will lend more than that without “requiring” you to purchase mortgage insurance, but you are paying a higher rate and the mortgage insurance is built into that on their end.

If a borrower needs to borrower more than 75% LTV, they would get a First Trust Deed for that amount and then take out a Second Trust Deed for the remainder, either as a Home Equity Line of Credit or a standard second mortgage.

By: queenvwr

queenvwr — Sun, 11 Jul 2010 13:43:55 +0000

This is called an 80/20 and anyone in the whole sale lending industry will tell you this is very common. There is nothing wrong with this loan although I will say that at that interest rate I am assuming they are going stated income, that is, not proving their income. If not, even in todays market that first is a bit high. The second is not a construction loan…no worries there, and they may in fact have a prepay. If their scores are lower, it may be their only option. OR…at that rate, they may have bought out the prepay. There are a lot of unanswered questions, but I can assure you as someone who has been in the wholesale market for 10+ years…..this is normal. Feel free to email me if you have any questions. No…I do not work with consumers so I am not trying to get your business,I just like to make sure people are informed and understand what they are doing.

By: kglover_23

kglover_23 — Sat, 10 Jul 2010 02:13:42 +0000

Yes it can. It may or may not be considered a first and second mortgage/line of credit. The smaller loan for $27k sounds like it could be a construction loan. I would definitely be leary of this. If the house is being built in a new sub-division (where the houses being there the longest have been there one year or less) the property taxes may not be accurate and could raise considerably by the next evaluation period. My husband and I were advised about our property taxes because of this same reason- we will find out later this year.

By: John

John — Fri, 09 Jul 2010 16:17:49 +0000

The structure is not uncommon. More so when the buyer has little to put down. The structure helps to avoid paying PMI.

The credit score is a bit low so the borrower is getting hit with a high interest rate. Likely to be some pretty steep fees being paid. Some of the time the rate is higher and the fees are lower as the lender will pay the broker after the loan closes so that there are lower fees. All legal and mostly covered by the estimate and the closing HUD statement.

Watch out for prepayment penalties as that is also common with such a deal when the credit score is average to low.

To improve things will require a bigger down payment and for the past credit problems to be cleaned up. If there is a plan to do so then maybe starting with this loan package makes sense and then refinancing in 1-3 years. Just check the prepayment fees if she does want to do a refinance in a few years.

Note that a 30 years fixed loan for good credit should be closer to 6.25%.

Checking that they are not in over the head is a great idea. Even if they can afford the payments do they have a cash buffer if someone is looses their job? What about fixing the place up (landscaping, curtains and other things that a new home needs)? Will they need furniture or do they have enough for a home this size? Those are all costs that seem to pop up even when it looked like you can afford the payments.

By: bullwinkle

bullwinkle — Wed, 07 Jul 2010 17:17:12 +0000

Something smells bad. They could get stuck paying for years, for a non-existent house. Consult a real estate attorney FAST.

By: Jen

Jen — Wed, 07 Jul 2010 14:31:20 +0000

I had to do this when I bought my first house (I had a condo) to make the 80% rule not to have to pay PMI. I had a first loan for the 80% balance and a second loan for the next 10% (I had enough for a 10% down payment). The second loan is usually a higher rate loan and is for a shorter term.

If they need this sort of situation to get into the home, it is pretty typical. With the credit score as low as you state, the rate seems about right too.

If they close the house and can get there credit score up, in about a year, they might consider refinancing, and combining the 2 loans into one, with a better rate. It also might have gained in value (the home) which can help the loan to value ratio to avoid paying the PMI.

By: Vegan

Vegan — Mon, 05 Jul 2010 04:39:29 +0000

Yes, it is typically a first and second mortgage, or a first mortgage and home equity loan.

When I bought my house I got a mortgage and a home equity loan. I did this to avoid paying PMI on the mortgage.

You should make sure there is no prepayment penalty. They can afford to pay down the loan aggressively (and I recommend that they do, 9.3% is a high rate of interest.) So if they pay more than the minimum each moth, they could get everything paid sooner and save thousands in interest.

By: The Cythian

The Cythian — Sat, 03 Jul 2010 13:25:02 +0000

Yes, this is usually called a combination of a first and a second mortgage. Some buyers like it to pay for closing and down payment. this is dangerous. It could lead to overspending for a mortgage and eventual bankruptcy, if not done with careful intent.

By: Niklaus Pfirsig

Niklaus Pfirsig — Thu, 01 Jul 2010 21:02:07 +0000

That sounds like what I had to do on my home. It can make the money really tight though..