Avoiding PMI with a Split Mortgage
PMI or Private Mortgage Insurance can significantly increase your monthly payment and the cost of home ownership. Let’s face it without PMI many conforming home buyers would simply be locked out of the market unable to make the required 20% down payment necessary to avoid PMI. Not all PMI is equal and there are many programs available that are great alternatives to the standard monthly BPMI that we will discuss in the future. I would just like to inform buyers of an option that does still exist called a split loan. Here’s how it works. On a 1st mortgage there is no PMI required at a max LTV (loan to value) ratio of 80% (20% down). You may add a 2nd mortgage on top of the first that will not trigger the need for PMI. These may also known as a Piggy Back loan. They would be expressed as 80/5/15, 80/10/10, 80/15/5, 80/20 and may also be structured various ways to fit your needs such as 75/15/10 etc. The numbers represent: 1st mortgage/2nd mortgage/down payment. There are many options of 1st and 2nd mortgages that can be combined to create a custom financing option to meet your specific needs.
Another great use of a split loan is to extend your purchasing power by maintaining a conforming first loan of $417,000 and adding a 2nd to avoid the increased pricing of Jumbo financing.
By Bill Frantz