Second mortgage for downpayment ?

[Michael Spindler]

As a first time home buyer my biggest disadvantage for my girlfriend and I is saving up for a downpayment. I see the State of Connecticut offers DPA programs but you have to make under a certain amount of income and can’t be co-ops.

Do other banks/lenders/brokers allow you to take out a second mortgage for your downpayment as a first time home buyer?

[Scott Hollister]

@Michael Spindler,

@Michael Doherty mentioned the good programs for first time home buyers. The best thing to do is save as much money as you can, with two incomes you should be able to get there within 6 months. 

• With the FHA loan, 3.5% down, you can purchase a 1-4 unit property. Just note for the 3 & 4 unit owner occupied ones, you will need post closing reserves. Where as the 1-2 unit you won't need as much. My advice is to max out the program in one of your names, then you girlfriend can buy another once you satisfy the minimum length required to stay in your first property.
• You can also use a 3% or a 5% conventional mortgage. Main difference is you pay MI (Mortgage insurance) instead of PMI (private mortgage insurance). Slightly less per month. Last quote I saw was around $80 a month for MI and $135 for PMI. This will change based on the borrower and property I believe, check with a good lender. (A good broker or local direct credit union.)
• You can also use the CHFA loan, and I believe there is assistance for the down payment as a loan. I think it's called DAP. I haven't worked with this before so don't know much about it, worth checking into for sure. 
• Another good loan is the USDA rural loan, but I believe this is only for single family homes. 

You can take out a 2nd mortgage (HELOC) for a down payment. BUT there are a few key things that you want to know first. The bank will factor the payment (payment as if the total loan is fully drawn on, even if it's not) into your monthly debt to income ratio. And also it's not wise to use debt as a down payment, for the most part. HELOC's are an amazing tool, but I like to use them as a credit card only, quick in and out. Fix and flip or anything with a value add component.

Another option you may want to think about is borrowing or getting a gift from a family member for the down payment. The golden goose for you is to find a 4 unit house hack, ask for a closing cost credit on the contract, and getting a gift as the equity/down payment. If you can't or someone won't, then just save up until you have enough.