How to find a piggy back (80/10/10) mortgage on a MF property ?

Question

My goal right now is to purchase and move into a fourplex.  I had been thinking about going FHA, but that PMI just stinks!

I was reading about a piggy back or 80/10/10 mortgage, and I kind of wanted to get a reality check on that.   My credit is 740+, and 10% down is  inside my comfort range. One thing I like about the 80/10/10 : I could aggressively pay down the 10% loan in a short period of time and be left with a long-term, low interest, no-PMI loan on the remainder.

My big question : Is the 80% first on a piggy back the kind of thing a typical conventional loan originator would be willing to do ?  In my last go-round with a lender, she said that NONE of the down payment could be in the form of a loan.  In my mind, that translates into : "No, a piggy back loan is not a possibility." At least not from her.

Are the rules different if you start out by asking for a an 80/10/10 loan ?  Is this something that some lenders do while others do not ?

Also, does the number of units matter ?  I recall that my lender said she could do 95% LTV on an OOC SFH (1 unit), but for the duplex I was trying to purchase (2 units) she could only do 85% LTV.

Thanks, BPers!

Charlie Fitzgerald · Answer

PMI is a gift. If you are not making more than the .80-1.30 % on your money that putting it into real estate to avoid PMI will save you, then you need another place to put your money. PMI is financed down payment. Meanwhile, your cash that you do not put down is earning you far more than it will save you in PMI by sinking it into a real estate investment (and the principal can be protected). 20% down on a $100,000 house is $20,000. Without the 20% down, you'll pay about $85 a month in PMI. At that rate it would take you 235 months to save another $20,000.

Stop thinking of PMI as wasted money. The wasted money is the money you put down to avoid something that is not costing you as much as the loss of earning power on the down payment will.

Stop thinking of PMI as wasted money.  The wasted money is the money you put down to avoid something that is not costing you as much as the loss of earning power on the down payment will.

Ryan Gillette · Answer

It's mostly used on a single-family purchase where the borrower will occupy and the borrower has 10-15% down. Then the question arises whether PMI or a second mortgage is better. The scenarios weighed are: 90% of their loan at 4% + .8% PMI for ~10 years; or 80% of their loan at 4% and 10% of their loan at 6% + any additional fees for the second. Often it's close when the math is done out. I find it's more commonly employed for individuals who are in a higher tax bracket where PMI is not tax deductible, but mortgage interest is. If that's the case, and the costs are about the same, the borrower is better off doing an 80/10/10, where they pay an extra $1000/year on the second mortgage that can be itemized than to pay $1200 on PMI that is not.

Ryan Gillette · Answer

No, you can't do an 80/10/10 on a multi-family through VA, USDA, FHA, Fannie or Freddie. To focus on Freddie- the max CLTV (total debt) is 80% on a 2-4 unit. To Fannie- the max CLTV is 85% on a 2 unit and 75% on a 3-4 unit. That means your first and second (and third and fourth) cannot exceed those ratios.

The PMI on an FHA 4 family isn't bad if you don't have 20%. Or you put 10% down like you want to with the 80/10/10 and you'll get a lower MI premium with FHA. But even if you put 3.5% down, tack .85% onto the 4% interest rate. Compare that to higher conventional interest rates around 4.5%. You're not paying too much of a premium for saving 16.5% down payment. I'm not saying FHA is amazing, but it's a pretty good shake.

Jeff S. · Answer

Okay, I'll toss the piggyback loan idea.  But, against all common sense arguments, I'm keeping the cats.

Thanks guys.

Jeff S. · Answer

I take it you're not a cat owner.  I've got socks that would make an Enron investor cry.

Charlie Fitzgerald · Answer

It's better off to be in your sock drawer than in an asset that can have it wiped out at any given moment.

Jerry Padilla · Answer

@Charlie Fitzgerald Great responses!

@Jeff S. I am not aware either. I would have to agree with the FHA financing. Rates are great and it is a 30 year fixed rate loan. If you are able to find a lender willing to do what your asking, I doubt the first loan is going to be fixed after 5 or 10 years.

Chris Mason · Answer

I have a pair of investors (a conventional first lender via correspondent lending, and HELOC 2nd lender via mortgage brokering) that together will do 80/10/10 on owner occupied duplexes. I can count on one hand the number of times I've done it, it's a VERY niche combination that I stumbled upon.

But nothing that I'm aware of for n/o/o or 3-4 unit.

If anyone finds that combination of 1st lender and 2nd for multi-unit other than o/o duplex, please immediately PM me the details of who and under what terms so I can get a new relationship going. :)

Charlie Fitzgerald · Answer

@Jeff S. at the moment I am catless...I had a cat for 21 years (same cat) that we had to put down a couple of moths ago...so I know of what you speak.  I still would rather pay $20,000 at $85 a month (especially since most people keep a mortgage for 3.4 years on average before refinancing it anyway.

Jeff S. · Answer

Okay, thanks @Charlie Fitzgerald.

Sadly, outside of real estate, I'm not sure I *am* making more than 0.8% on any of my money. :-{

But your point is well taken.

How to find a piggy back (80/10/10) mortgage on a MF property ?

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