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Using a Second Mortgage for an 80-20 No Money Down Home Purchase Loan

Many renters want to own their own home, but they simply dont have the down payment to make the purchase. If youre able to afford a house payment as much as your monthly rent, an 80-20 no money down loan could get you out of the rent trap. (80% first mortgage – 20% second mortgage) “It allows people to buy without a down payment, or for those people who would prefer not to touch their savings to get into a house,” says mortgage expert. “What we’re seeing is a lot of young professionals,” he adds. “People who have gotten out of college and have good jobs. They have good credit, but they haven’t had the opportunity to accumulate a lot of savings.”

The 80-20 loans are also known as piggyback loans. The buyer takes out a loan for 80% of the cost of the home. Then takes out a second mortgage for 20% of the loan to use as a down payment. The homebuyer has three options for the 20% part of the loan. Most often the 20% loan is secured from a separate lender, but look up for the second loan to have a higher interest rate.

MortgageDaily.Com shows The second lender-the one who is only financing 5% to 20% of the loan-doesn’t see much benefit from lending the money unless he can actualize a high interest return. If the buyer borrows from the same financial institution, they could open a home equity line of credit and withdraw two separate amounts; one amount for 80% of the loan and 20% for the down payment.

The third option is to borrow the 20% part of the loan directly from the seller, also known as a purchase money loan. Kipplinger.com shows there is a down-side to the 80-20 loan. You likely will have to pay a higher interest rate, buy private mortgage insurance (borrowers usually pay 20% of a home’s value to avoid this) and make bigger monthly mortgage payments. Plus, it can be dangerous to be so highly leveraged. But in an expensive housing market, it can be the only way to afford a home.
Doug Duncan, chief economist of the Mortgage Bankers Association of America says, Most banks offer special mortgages to low- and moderate-income borrowers because the Community Reinvestment Act requires financial institutions to provide a certain share of business to these economic groups. But no- and low-down options for jumbo loans (higher than $300,700) are harder to find.

The costs of the higher interest rate from the 80-20 mortgage are sometimes off-set because there is no mortgage insurance built into the loan. The State of California only requires mortgage insurance for all home loans exceeding 80% loan to value or LTV. An 80-20 loan allows the home-owner to step aside the insurance requirement, thus having a lower monthly payment.
If your goal of an 80-20 loan is to have a lower monthly mortgage payment, another option is the T.A.M.I. program. The T.A.M.I. program includes mortgage insurance where as the 80-20 program doesnt require mortgage insurance. Robin M. Root; a senior level loan officer says the T.A.M.I. provides lender-based mortgage insurance in exchange for a slightly higher interest rate. Since the IRS, allows a deduction for all interest paid for home loans, the cost of the mortgage insurance is tax deductible. And, unlike the 80-20 loan program, when the buyer has equity built up, the homeowner has the flexibility to open a home-equity loan for home improvements or cash emergencies.

The difference between home equity loan and home line of credit.

Once you have built up equity in your home, you have the privilege of applying for a home equity line of credit, which allows you to borrow the money you need.
Most financial insititutions ( banks, savings and loans ) have entered the home equity market, so you have plenty of options when you shop for the best loan.

In effect, a home equity loan is a second mortgage on your home. You usually get a line of credit up to 70 percent or 80 percent of the appraised value of your home, minus whatever you still owe on your first mortgage.

For example, if your home is worth $100,000 and you owe $20,000 on your mortgage, you might receive a home equity line of credit for $60,000 because your lender would subtract your $20,000 owed on the first mortgage from your $80,000 worth of equity.
You will qualify for a loan not only on the value of your home but also on your creditworthiness. For instance you must prove that you have a regular source of income to repay a home equity loan.

The difference between the two kind of credits is easy: the home equity loan has a fixed rate and the home equity line of credit has a rate that fluctuate and it’s better indicate to consolidate other debts than the credit cards.
The home equity line of credit is an ” on demand” source of funds that you can access and pay back as needed.

You only pay interest if you carry a balance because these line of credits are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home.

Like other mortgages, the home equity loan requires you to go through an elaborate process to qualify for an open line of credit. You will usually need a home appraisal and must pay legal and application fees and closing costs.

Because a home equity loan is backed by your home as collateral, it is considered more secure by lenders than unsecured debt, such as credit card debt. Further, because the loans are less risky for banks, you benefit by paying a much lower interest rate than you would on credit cards or most other kinds of loans.

Home equity loans can therefore offer extremely attractive rates when the prime interest rate is low, but subject you to much higher interest costs if the prime shoots up.

You can tap the credit line simply by writing a check, and you can pay back the loan as quickly or as slowly as you like, as long as you meet the minimum payment each month.

Secured loans make your creditors feel more secure about loaning you money. When someone takes out a secured loan, that simply means there is collateral to back up the money they borrowed. This could be a car, or more commonly, a house. There are pros and cons to getting a secured loan as opposed to a standard loan for debt consolidation.

Home Equity Line of Credit – Perhaps one of the most common secured loans is the home equity line of credit. This loan amount is based on how much equity you have in your home. Once you take out this type of secured loan, your house becomes collateral. The most positive aspect of a secured home equity loan is that the money you borrow is tax deductible. For instance, if you have $5,000 in credit card debt, you can roll that over into a home equity line of credit. The credit card payments are not tax deductible, but the home equity loan is. In contrast, standard debt consolidation loans are not tax deductible.

Interest Rate Advantages – Another advantage of using a secured loan for debt consolidation is the interest rate. For many people, credit cards are the source of their debt problems. Credit cards have enormous interest rates. Since secured loans are “secured” by collateral, they tend to have significantly lower interest rates.

After discussing the pros, it is important to understand the con of using a secured debt consolidation loan. Again, many people use a house or a car to secure these types of loans. If you happen to default on the loan and cannot make payments, your house or car will be in jeopardy. A house is usually the largest asset someone owns. You do not want to put your most valuable asset at risk.

For some people, debt consolidation is the best option for their financial problems. Be sure to carefully weigh the pros and cons before choosing to use a secured loan for your debt consolidation.

Some homeowners might consider re-financing with a home equity line of credit as opposed to a traditional loan. There are definite advantages and disadvantages to these types of situations. The key to understanding whether or not re-financing with a home equity line of credit is worthwhile involves understanding what a home equity line of credit is, how it differs from a home loan and how it can be used. This article will briefly cover each of these topics to give the homeowner some useful information which may help them decide whether or not a home equity line of credit is ideal in their re-financing situation.

What is a Home Equity Line of Credit?

A home equity line of credit, sometimes called a HELOC, is essentially a loan in which funds are made available to the homeowner based on the existing equity in the home. However, in this case, it is not really a loan but rather a line of credit. This means a certain amount of money is made available to the homeowner and the homeowner may draw on this line of credit as funds are needed. There is a specified period in which the homeowner is able to make these withdrawals. This is known as the draw period. Additionally there is a repayment period in which the homeowner must repay all of the funds they withdrew from the account during the draw period.

How Does a Home Equity Line of Credit Differ from a Home Equity Loan?

The difference between a home equity line of credit and a home equity loan is really quite simple. While both loans are secured based on the existing equity in the home, the manner in which the funds are disbursed to the homeowner is rather quite different. In a home equity loan the homeowner is given all of the funds immediately. However in a home equity line of credit the funds are made available to the homeowner but are not immediately disbursed. The homeowner is able to draw against this line of credit as he sees fit. There are limits to the amount which can be withdrawn and there is also a limit on when funds can be withdrawn. A home equity has a draw period and a repayment period. Funds can be withdrawn during the draw period but must be repaid during the repayment period.

How Can a Home Equity Line of Credit Be Used?

One of the biggest advantages of a home equity line of credit is that the funds can be used for any purpose specified by the homeowner. While other loans such as an auto loan or even a traditional mortgage might have strict restrictions on how the money lent to the homeowner can be used, there are no such restrictions on a home equity line of credit. Common uses of a home equity line of credit include the following:

* Home renovations or improvement projects
* Opening a small business
* Taking a dream vacation
* Pursuing higher educational goals
* Opening a small business

In some cases the interest paid on a home equity line of credit may be considered tax deductible. This may apply in situations where the funds are used to make repairs or improvements to the home. However, these expenses are not always tax deductible and the homeowner should consult with a tax professional before making decisions regarding which interest payments can be deducted.

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Refinancing Your Home Equity Loan Or Refinancing Your Home Equity Line Of Credit

Ask yourself these questions before you refinance your home equity loan or line of credit:

1. How Much Will it Cost to Refinance? – Figure the costs of refinancing and the increase or decrease in interest rate over the course of the loan. There are many refinance calculators available online that you can use for free to help you calculate whether or not the cost is worth it.

2. Are You Refinancing For More Favorable Loan Terms? – Sometimes people refinance for better loan terms, like a fixed rate, a shorter term, like from 30 to 15 years to payoff. Sometimes, if refinancing doesn’t necessarily save you much money, but you are moving to better loan terms, it can be worth doing the refinance anyway.

3. Are you including the loans closing costs in the loan balance? – If so, realize that not only are you paying those closing costs, but you are also paying the interest on those closing costs over time. Make sure you add those numbers into your calculations when figuring whether or not it’s worth refinancing. Add the interest costs and payments for the rest of your current home equity term and compare them to the interest costs of the proposed refinance loan. This will help you determine if there is a worthwhile savings.

4. Will you need your home equity line of credit in the future? – There are definitely benefits to having a home equity line of credit available to you in the future. If you don’t have much in savings, and have money available in your home equity line of credit, you may want to consider keeping it. If you refinance it, then if you run on hard times and need to borrow money from your home’s equity, you will have to take out a new home equity line of credit. You might not have the option of taking out a new home equity line of credit when you need one.

For many of us, money can get tight every now and then. We have felt the pinch, and many are feeling it now. If you are in that situation where you now have a lot of debt, and are wondering what you can do about it, there is a possible solution for you with a second mortgage. If you already own a home, have some equity built up in it, have a decent credit rating, then you probably already qualify. Here are some things you need to know about getting a second mortgage for debt consolidation.

First Things First

Before you think about getting a second mortgage, there is the possibility of a more economical way to consolidate some debt. That step would be to refinance your first mortgage. It only makes sense, though, if you can refinance at a lower rate of interest than what you currently have on your existing mortgage and present debts, such as your credit cards, that this would be a good way to go. This should be looked at as your first choice because a second mortgage will have higher rates of interest than a first mortgage.

How It Can Help

If refinancing is not available to you, then consider getting a second mortgage. This type of loan is usually against the equity of the home often called a home equity line of credit. A second mortgage can save you a considerable amount of money by giving you lower interest rates than credit cards, and by making your payments smaller each month.

Look At Loan Costs

When you are ready to choose which loan is for you, you need to look at more than just the interest rates. One of these would be the length of time for the loan. While it is a good thing to have lower payments, you also need to make sure that the total amount to be paid puts you in a better situation. A longer time period may end up meaning that you are actually paying more over the long run. In addition, you need to consider all other fees (points and closing costs) before you commit yourself for the long haul.

Consider The Type of Loan

Then, you should think about the type of second mortgage you want. A fixed rate mortgage allows you to have a steady payment for the duration of the loan. On the other hand, a variable rate mortgage has flexible payments that are dependent on the economy. This means you could have a real savings some years, and higher payments in the bad times. Generally, if the economy looks like it will be good for a while, then this would be the best way to go. Be sure, though, that you refinance it before the rates get totally out of hand and you lose your home.

Whenever you deal with loans and second mortgages, be sure to compare it with other lenders. You can do this very easily online and get an online quote very quickly. While a second mortgage can be used for any purpose, you should apply the money you need to pay off all existing debt (debt consolidation is good, but debt removal is better) before you do any thing else with it.

For many of us, money can get tight every now and then. We have felt the pinch, and many are feeling it now. If you are in that situation where you now have a lot of debt, and are wondering what you can do about it, there is a possible solution for you with a second mortgage. If you already own a home, have some equity built up in it, have a decent credit rating, then you probably already qualify. Here are some things you need to know about getting a second mortgage for debt consolidation.

First Things First

Before you think about getting a second mortgage, there is the possibility of a more economical way to consolidate some debt. That step would be to refinance your first mortgage. It only makes sense, though, if you can refinance at a lower rate of interest than what you currently have on your existing mortgage and present debts, such as your credit cards, that this would be a good way to go. This should be looked at as your first choice because a second mortgage will have higher rates of interest than a first mortgage.

How It Can Help

If refinancing is not available to you, then consider getting a second mortgage. This type of loan is usually against the equity of the home often called a home equity line of credit. A second mortgage can save you a considerable amount of money by giving you lower interest rates than credit cards, and by making your payments smaller each month.

Look At Loan Costs

When you are ready to choose which loan is for you, you need to look at more than just the interest rates. One of these would be the length of time for the loan. While it is a good thing to have lower payments, you also need to make sure that the total amount to be paid puts you in a better situation. A longer time period may end up meaning that you are actually paying more over the long run. In addition, you need to consider all other fees (points and closing costs) before you commit yourself for the long haul.

Consider The Type of Loan

Then, you should think about the type of second mortgage you want. A fixed rate mortgage allows you to have a steady payment for the duration of the loan. On the other hand, a variable rate mortgage has flexible payments that are dependent on the economy. This means you could have a real savings some years, and higher payments in the bad times. Generally, if the economy looks like it will be good for a while, then this would be the best way to go. Be sure, though, that you refinance it before the rates get totally out of hand and you lose your home.

Whenever you deal with loans and second mortgages, be sure to compare it with other lenders. You can do this very easily online and get an online quote very quickly. While a second mortgage can be used for any purpose, you should apply the money you need to pay off all existing debt (debt consolidation is good, but debt removal is better) before you do any thing else with it.

Your home is your most valuable asset and also allows you to obtain further home equity loans and credits when you are in urgent need of further loans and credit. When people refer to these loans, they generally refer to the terms ‘home equity loans’ and ‘home equity lines of credit’ interchangeably. Though they may seem to mean the same thing, they are in fact quite different in nature.

While home equity loans are more like the traditional mortgages, in which you get the loan amount as a lump sum and you then repay the interest as installments over a set stretch of time. Home equity loans work on the principles of fixed rates and fixed payments.

On the other hand, home equity lines of credit work more like credit cards. This form of loan allows you to borrow an amount up to a certain limit. As you keep on paying off certain portions of your debts, it opens up more credit limit for you. These loans however, work on the principle of variable interest rates.

Though home equity line of credit works on similar principles to the credit card, there are still some differences between these two forms of credit. Credit cards come with the typical open ended feature. But this is not the case with the home equity credit line. There is a specified time frame, usually about ten years, during which you are allowed to draw any amount within your credit limit. During this period you are required to pay back the interest amount only. On completion of the drawing period, you can no longer make any further withdrawals from the credit account. The drawing period is then followed by the payment period, which is the time you have to start paying off the principal as well as the rest of the interests. Certain financial institutions may renew the draw period, but that only adds to your burden seeing that sooner or later you have to eventually pay off the principal.

Once you obtain a home equity line of credit, you will be able to borrow within your credit limit whenever the need arises. You have to use special checks to draw on your home equity credit line. There are also certain financial institutions and some credit plans that allow the borrower to use a credit card to draw cash on their credit line.

There are certain limitations with regard to how you make use of the home equity credit line. There are some plans where you are required to take out a minimum initial amount when the credit line is initially activated. Some plans may also fix a minimum amount that you have to draw each time you are withdrawing from the credit line.

Mortgage Loans Should I Refinance Now with Rates Increasing?

When rates are rising should you consider refinancing your mortgage loan? When rates are falling this is a moot question. Of course you should consider doing a refinance whether it be a fixed loan or home equity loan. When rates are rising you should, in my opinion, only consider refinancing if you want to take cash out of the equity in your home or if you feel now is the time to lock in a fixed rate.

If the market appears to be on a longer rise, locking in a fixed rate now can save you money in the future. Homeowners with adjustable rate mortgages can rise at the end of the initial low rate ARMs charge for the first twelve months. This currently means your rate can rise 2.75 points or so based on your original agreement. This translates to much higher payments than you currently are paying.

When refinancing, you should take the actual cost of refinancing into consideration. The amount of money you spend to arrange the financing takes time to recoup. Are you planning to live in your property long enough for this to be a wise decision now? If not, I would suggest looking for very low cost home equity loans. If you have a good working arrangement with your Banker, he can perhaps get your costs reduced on a home equity line of credit or loan. Just ask, it does not cost you money to investigate the possibilities.

If you are in a position that requires you have a fixed mortgage payment to maintain your peace of mind, then you should do it. Rates rise for a while, then remain stable for a while before they start coming down. A shift in the market attitude and consumer spending will have to happen for the Fed to reduce rates.

Dont refinance your loan if you dont have a good reason. Paying for a new vacation or luxury is not, in my opinion, a good thing to do with the proceeds of a loan when rates are rising. If you need to pay off debt, give it some thought before your proceed.

Ask questions, seek out your friends who are knowledgeable, talk to your bankers or investment people, just do something. You can reduce your mortgage payment or just get a fixed payment if that is your goal.

Unsecured Debt Consolidation Tips For Getting A No-collateral Loan

Getting an unsecured debt consolidation is not easy, but possible. For the most part, banks and other financial institutions are hesitant to loan money that is not secured by a piece of property. If you were to default on the loan, the lender is unable to recoup their lost. However, some lenders are willing to offer unsecured debt consolidation loans. To obtain such as loan, you must be a prime candidate

Traditional Debt Consolidation Options

Typically, consumers would obtain a debt consolidation using their vehicle or home as collateral. This involved giving the lender possession of a vehicle title or applying for a home equity loan or home equity line of credit. In both instances, if you were unable to repay the loan, the lender could claim your home or car.

Today, many financial institutions are making it possible for consumers to obtain unsecured personal debt consolidation loans. These loans do not require collateral, which could mean a higher interest rate.

Getting Approved for an Unsecured Debt Consolidation Loan

If you are hoping to get approved for an unsecured debt consolidation loan, you must take steps to ensure that banks will consider you a prime applicant. Unsecured debt consolidated loans are not offered to just anyone. Because these loans are not secured, financial institutions are very cautious.

To obtain an unsecured debt consolidation loan, lenders require a very good credit rating. Hence, the key to getting approved for any type of unsecured loan is boosting your credit. To begin, check your personal credit report. Contact several lenders and inquire of their individuals requirements for obtaining an unsecured loan.

In most cases, lenders will require a minimum credit score. If you meet their lending requirements, request a quote. In fact, get quotes from at least three or four lenders. Unsecured loans may carry a higher interest rate. However, some lenders will offer comparative rates for top applicants. These consist of individuals with remarkably high credit scores.

Lenders rarely offer unsecured debt consolidation loans to people with fair or bad credit ratings. The odds of these prospective borrowers defaulting on the loan are much higher. For the most part, persons with a superb credit rating will not risk damaging their credit, which makes them prime candidates for unsecured loans.