Piggyback loan

[bode316]

Hello all, I am 23 years old and about to buy a house. Here are my stats

17,000 in stock account
5,000 in checking
6,000 in savings
4,000 in 401k
2,000 in company sponsered retirment

I make around 65-70,000 a year, put up 12% in 401k, get a 6 percent match, and also get a company retirement plan.
I am getting married in 6 months, and want to buy a house pretty soon. My truck is paid for, I drive a company vehicle and free gas also, and have no student loans. My future wife starts working next week and will make 60k also.

Here is what I have seen. I qualified for a loan at 250,000, but I don't want to take out that much. I found a house for 180,000 that I like.

When I talked to the lender, they wanted me to do an 80-15-5 loan, meaning 5 down, 15 as a piggy back and the 80 as mortgage. I will probably do an 80-10-10, unless someone else has some better advice for me to avoid paying PMI.

Has anyone taken out a piggyback loan?

 

[samclem]

I am getting married in 6 months . . .

I found a house for 180,000 that I like.

Maybe you should let your bride-to-be take a peak at this house before you jump in.

The 80-15-5 loans are very common now, you aren't getting into uncharted waters. Just be sure you've shopped aroud and are getting a good deal (APR and points). I would be looking to lock in a fixed mortgage, and would not consider an ARM unless I KNEW I'd be moving before the rates come unlocked (in which case, buying may not make sense). Without knowing much else about your situation, I would probably go for the 5% down payment and avoid selling off appreciated assets (and taking the tax hit). Also, with a new house and as newlyweds, you'll have other expenses--lots of them--so you don't want to cut into your reserves. Nothing undercuts martial harmony like money issues.

PMI--yes, it would be good to get rid of it, but I think it might be best in your case to do it through accelerated payments of principal.

There are a lot of opinions here about the advisability of paying off a mortgage vs investing the money.

 

[Nords]

When I talked to the lender, they wanted me to do an 80-15-5 loan, meaning 5 down, 15 as a piggy back and the 80 as mortgage. I will probably do an 80-10-10, unless someone else has some better advice for me to avoid paying PMI.

"The" lender? Have you tried a credit union or working through a mortgage broker?

You may be able to find a fixed-rate loan with 5% down and PMI for less monthly payments than the 80-10-10. I guess a lot of that depends on how long you expect to be in the house and how soon you'll be able to get rid of the PMI... or that first "10".

I don't know if lenders will treat the two of you better after you're married. But you and your spouse's-to-be income together may give you a better credit rating (better interest rate) and a lower down payment.

 

[brewer12345]

A couple of thoughts:

- make sure you shop around and deal with a loan provider that won't screw you. I would benchmark anything you are offered against offers from Etrade and E-loan, both of which will give you a firm quote that they guarantee (no "estimates" that mysteriously always end up lower than the acutal costs/rate).
- Double check to see if PMI might be cheaper. Most of the providers of PMI have calculators on their sites that let you figure this out.
- Especially if you are planning on buying a house without much of a downpayment, make sure you have several months's worth of living expenses salted away somewhere safe. As a first time buyer, you will be amazed how houses can consume cash.

 

[Hamlet]

When I bought my house in Feb 2005, I used a 80-15-5 loan. It worked out pretty well.

I would recommend getting the 80% loan as a 30-year fixed. The 15% HELOC loan will probably be at a poor rate (9% or so), so you will want to pay it off reasonably quickly. It should still be quite a bit cheaper than PMI.

I've moved the remainder of the HELOC to a 0% interest credit card, so now it isn't costing me anything

 

[brewer12345]

It should still be quite a bit cheaper than PMI.

Not that I am in love with mortgage insurers, but you should double check that.

 

[lets-retire]

The last time I checked PMI wasn't deductible so make sure the tax advantages of the increased interest amount are taken into consideration. If you go with the 80-whatever-whatever, your accelerated payments actually go to paying off the second loan which if done long enough will result in lower payments without refinancing. I used to do 100% on all until it dawned on me that as long as the first was reasonably priced I could receive a substantial reduction when the second was paid off. I also noticed the interest on the second was less than the PMI.

I know this had been debated before, but after you payoff the second you could take those payments and easily pay toward your first. By doing this my current house will be paid off in less than 10 years from purchase to mine.

 

[brewer12345]

Actually, PMI is now tax deductible (just happened). I stuck some sample numbers into http://www.privatemi.com/calculators/calc_piggyback.cfm and it looks like PMI compares favorably to a piggyback structure.

 

[lets-retire]

Actually, PMI is now tax deductible (just happened). I stuck some sample numbers into http://www.privatemi.com/calculators/calc_piggyback.cfm and it looks like PMI compares favorably to a piggyback structure.

The DW was saying it was a possibility that PMI would be deductible, but that was several years ago. I thought it had been shelved. Do you know if it is taken as a standard itemized deduction, similar to mortgage interest deduction?

 

[brewer12345]

Don't know the specifics, but here is a press release issued by a large mortgage insurer:

"PMI Mortgage Insurance Co. Heralds Congressional Passage of Tax Deductibility of Mortgage Insurance Premiums
WALNUT CREEK, Calif., Dec 11, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- New congressional legislation allowing homebuyers to deduct the cost of mortgage insurance premiums on their federal income tax returns is a welcome development for homebuyers, Steve Smith, Chief Executive Officer of The PMI Group, Inc. (NYSE: PMI) and PMI Mortgage Insurance Co., commented today.

"We congratulate Congress for helping low- and moderate-income Americans overcome barriers to homeownership," Smith said. "By making mortgage insurance tax deductible, Congress is addressing the key issue of housing affordability for many homebuyers."

David Katkov, President and Chief Operating Officer of PMI Mortgage Insurance Co., explained, "The median home price in the United States today is about $221,000, which means a down payment of more than $40,000 if you put down the traditional 20 percent. In high cost areas such as California, where the median home price is almost $549,000, saving a 20 percent down payment is even more of a challenge. In today's climate of slowing home price appreciation, an insured loan is a simple, safe, and smart way for people to get into a home and start building equity. Being able to deduct the cost of the premiums means more savings for consumers."

Borrowers closing loans to purchase homes in 2007 who have annual household incomes of $100,000 or less will be able to deduct the full cost of their mortgage insurance premiums on their federal tax returns. "

 

[lets-retire]

http://money.cnn.com/2006/12/20/pf/taxes/bush_taxbill/index.htm?postversion=2006122012

It look like it'll be treated the same as the mortgage interest deduction.

 

[brewer12345]

http://money.cnn.com/2006/12/20/pf/taxes/bush_taxbill/index.htm?postversion=2006122012

It look like it'll be treated the same as the mortgage interest deduction.

Huge giveaway to the mortgage insurers, then. Nice return on their lobbying dollars...

 

[saluki9]

Huge giveaway to the mortgage insurers, then. Nice return on their lobbying dollars...

What the hell is the point? Most low and lower middle income tax payers don't itemize anyway

The standard deduction is big enough to make this pointless. Who know, maybe those outrageous PMI premiums will throw them into itemizing?

 

[goodguy1_64]

My 2 cents:

Put off buying the house until you can afford the down payment that will avoid PMI.

Goodguy..

"unless someone else has some better advice for me to avoid paying PMI. "

 

[gmt]

bode316-

We took out a piggyback loan, 80-20. It has worked out well, but the 2nd is at a higher interest rate so we are trying like mad to pay it off ASAP.

Looking back at our decision to purchase the house instead of waiting until we had 20% of the purchase price, I would probably wait if I had to do it all over again. DW wouldn't wait, but she is more of a risk taker than I am.

gmt

 

[samclem]

What the hell is the point? Most low and lower middle income tax payers don't itemize anyway

The standard deduction is big enough to make this pointless. Who know, maybe those outrageous PMI premiums will throw them into itemizing?

The real estate agents will appreciate it, as they'll now be able to add the PMI deduction into their misleading "DON"T WASTE MONEY RENTING" handouts. I think many lower income first-time buyers are fooled by these depictions of the real cost of renting vs buying, since these folks often don't realize that only the deductions above the standard deduction do them any good.

 

[Nords]

I think many lower income first-time buyers are fooled by these depictions of the real cost of renting vs buying, since these folks often don't realize that only the deductions above the standard deduction do them any good.

With the size of the mortgages they'll be getting, the interest payments will make the standard deduction look like a rounding error-- no problem!

 

[brewer12345]

The real estate agents will appreciate it, as they'll now be able to add the PMI deduction into their misleading "DON"T WASTE MONEY RENTING" handouts. I think many lower income first-time buyers are fooled by these depictions of the real cost of renting vs buying, since these folks often don't realize that only the deductions above the standard deduction do them any good.

Actually, if you are in the upper half of the 100k income spectrum and live in a state with its own income taxes, you generally do get the value of the mortgage interest deduction.