80/15/5 Piggyback loan ?

Question

Has anyone use a 2nd loan to cover the difference in Down payment ? I’m looking purchasing my first multi family unit home. I’m looking into a 4 unit multi family home in the contra costa area and planning to live in one of the units and rent out the other 3. My lender informed me I’m approved for 1.5 mil and they’ll lend me 1.2mil. For my down payment amount I have around 55k and the lender said they can take out a 2nd loan to cover the difference in down payment.  This would be my first property  ever so I was hoping could anyone advise on the pros and cons of doing this type of loan. I want to renovate the units throughout the year and hoping to refinance after a year and looking to get one loan for the property . Any advise would he greatly appreciated

Mike Dymski · Answer

This sounds like 2008.  I recommend having a cash reserve to cover unexpected vacancy or repairs; otherwise, you are one sneeze away from pneumonia.

Jason Ortiz · Answer

That's were I'm confused. I'm new to this so I had to ask. I'm hoping to bring the value up but with the shift in the economy idk if there's going to be a small shift in home prices. Worst case I'll keep it for a while until my next property.

Jason Ortiz · Answer

I need to offer purchase the property a bit lower than asking and if I get it i'll have over 8% ROI. I'm also looking around different properties

Will Kenner · Answer

@Jason Ortiz Would your projected rent from the other 3 units cover the combined loan payments? I assume you would still be negative cash flowing after covering other operation expenses?

Jay Voorhees · Answer

@Jason Ortiz - Very interesting. Neither appear to be adjustable and there are no pre payment penalties which is good news for you.

This must be some type of unique financing since it sounds like your CLTV is 95%.

A quick word of caution, when you refinance, you will need 80% equity for a standard agency loan. With renovations it sounds like you will get here, but it's still good to cross-check all of your projections.

Also depending on where you are in the Bay Area, make sure you understand if rent caps apply to your situation.

Best of luck!

Jason Ortiz · Answer

This is what I got from my lender

We do not send out documents on the 2nd until you have a fully executed purchase contract. The current terms for the 15% 2nd has a 20 year fixed rate at 10.74% so if the 2nd was in the amount of $225,000 the payment would be $2,282.74. If you have direct deposit with the credit union and set up auto pay for the 2nd the rate is .50% less so the payment would be $2,207.20. There are no prepayment penalties on either loan. On the cost breakdown it showed the 2nd payment at $2,359.29 because the rate was 11.24% then. Hope this help.

Erik Estrada · Answer

@Jason Ortiz Is this a downpayment assistance program you are talking about or taking on another loan for the downpayment?

Jay Voorhees · Answer

Hi Jason - I'm very curious, what type of loan product are they offering you?

For combination financing in general, you'll want to pay attention as to whether or not the second loan is fixed or adjustable. Also, whether or not you are making an "interest only" payment for part of the term, or if it is fully amortizing. Combination financing is a common method for reaching above the county loan limit, but as this limit is $1,867,275 in Contra Costa, it seems this is truly only for the "down payment" itself. This must be a specialized product, because conventional lending law will still require your combined loan to value ratio to be under 80 for an agency loan on a 4-unit home.

80/15/5 Piggyback loan ?

Most Popular Reply