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I have no clue but friend wants to know
first loan is fixed equity loan at 9.850 (104000)
second loan is conventional is conventional at 9.3 (26,00)
Is this typical? Are the loans both fixed? Should he be worried? I rent so I honestly dont know what to tell him.
Is he in danger? Are two loans for mortgage typical for 1st time home buyer?

2007-12-04 09:47:02 · 5 answers · asked by kiwi 1 in Business & Finance Renting & Real Estate

104,000 loan fixed at 9.3
27,000 is not fixed it is 30/15?
I dont know what the 30/15 means sounds funky. Its a conventional loan

2007-12-04 10:08:05 · update #1

27,000 loan he said is 9.850 and is 30/15 and the loan type is fixed equity loan. See this is why i rent this is very scary.

2007-12-04 10:11:43 · update #2

He earns over 130,000 a year.

2007-12-04 10:19:00 · update #3

he also has no kids and is single.

2007-12-04 10:19:39 · update #4

he is also single with no children

2007-12-04 10:20:06 · update #5

5 answers

This is called an 80/20 or an 80-10-10 or some other form of piggyback mortgage.

The first mtg is most likely 80% of the purchase price.

The second mtg lets the buyer avoid mortgage insurance (sometimes it's called private mortgage insurance or PMI), which is of no benefit to the buyer. It protects the lender in case of default, but the buyer pays for it. It's a reasonable thing, because the risk is greater when the buyer has less vested interest in the property, but I wouldn't want to pay it either.

I think you mean it's a fixed rate loan, not a fixed equity loan, but that's a pretty high rate for today's market. Are there some credit issues? If not, I'd think twice about that rate.

You say the 2nd is conventional. Any loan that's less than $417,000, and/or not FHA or VA is conventional. From what you've said, I can't tell if the 2nd is fixed, but PM2 (purchase money 2nd) is very often a line of credit or ARM.

Typical? Well, it's not unusual. It's very common today that people don't have enough cash to make a 20% downpayment, and this option should get a better rate on the 1st than 100% financing.

He needs to figure out if the money he saves by NOT having mortgage insurance is more than the cost of the 2nd mortgage.

He'd be better off with one mortgage with a decent rate, even if he has to pay MI. That's really a lousy rate.

He needs to read his loan documents -- within 3 days of applying, he should have disclosures, a copy of his application and a truth in lending statement, among other documents, that will give him the specifics of the loans. It's not typical for the rate on the first to be higher than the 2nd.

He's not in any danger from having two loans, but I sure don't like the rate on the first mortgage, unless his credit really stinks.

********
Saw your additional notes. I don't know what 30/15 means either. But the rate on that 1st is really terrible. Tell him he owes it to himself to look into some other loans.

2007-12-04 10:00:27 · answer #1 · answered by Debdeb 7 · 0 0

The lender is making what is called an 80/20 loan. These loans are done in order to eliminate PMI. PMI is an insurance that is required on loans where the loan on the property property is for more than 80% of it's value. The PMI may cost more on one loan than by taking out 2 loans.

The first mortgage rate sounds very high and either your friend has bad credit, or the mortgage lender is hosing him. The 2nd is high also, but 2nd mortgage rates are higher than 1st mortgages because the lender for the 2nd mortgage has a much higher risk.

Based on your information, I can't tell if these are fixed rate or adjustable rates and his mortgage broker needs to let him know this, when the re-sets will be and what factor the re-set is based on.

The best thing to do is to have your friend go to a different mortgage broker and see what this one offers, or to go to a site like lendingtree.com and shop for multiple quotes.

The answer to if he is at risk with these mortgages depends more on him being able to afford the mortgages rather than the terms of the mortgages.

2007-12-04 10:15:16 · answer #2 · answered by Bobcat 3 · 0 0

There is a big ingredient you have left out and that is "How much money is your friend earning?"

This is vital to answer your question. If for example he is not making enough to pay the payments then he would have problems. However if he is making enough to make the payments there are no problems.

As a real estate agent I have seen folks with 2 3 even 4 loans on a house and they were able to make the payments.

The key is the income to payment ratio so as a rule just remember that in order to make a payment "Safely and comfortably" the borrower should be earning 3 times amount of the payments on a monthly basis.

For example, if the monthly payments are $2000 per month then a borrower or homeowner should be earning $6000 per month in order to make the payments comfortably.

Also YES it is typical that buyers have 2 loans when buying.

As a rule remember this..
The more money you put down the lower the payments and if you put enough money down you need NO second loan.

My guess is that he is putting hardly any down payment down. So for this reason there are 2 loans. Its a wise way for the loan companies to do it as it offsets their risk and doesn't make one loan co. fully liable if he defaults on payment.

2007-12-04 10:15:44 · answer #3 · answered by Anonymous · 0 0

The rate depends on his credit score, the amount of the down payment, and the price of the home. It is fine to have 2 loan regardless if he is a 1st time home buyer. Generally you would not have a equity line in 1st position. Are you sure you have all the facts?

2007-12-04 09:56:25 · answer #4 · answered by Lory R 1 · 0 0

The interest is high. The smaller loan is the down payment to buy the house. This is a common trick for people who don't have enough for a down payment. The bank gives the people a second loan so they will have the down payment for the first loan.

2007-12-04 09:55:57 · answer #5 · answered by Greg 2 · 0 0

very scary. Interest too high. find a different lender. It sounds like an 80/20% There are many programs for 1st time buyers at low interest rates. Tell your friend to run fast very fast and find a different lender.

2007-12-04 09:52:18 · answer #6 · answered by pammi716 3 · 0 0

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