Tips on getting home loans

One of the certain outcomes from the subprime mortgage lending debacle is that lenders are going to be more careful. That means a no-money-down mortgage will be much harder to find, and more expensive if you do find one. Also, try to make a down payment that is at least 20 percent of the purchase price. If you cannot do this, a first mortgage lender will require private mortgage insurance, or PMI.

Homeowners hate paying PMI because they’re paying an insurance premium to protect the lender’s investment. However, it’s one way for a homeowner with a small down payment to qualify for conventional financing. A PMI calculator can help you estimate the monthly PMI expense. A piggyback mortgage is one way for a homebuyer to avoid PMI. With this option, a second mortgage is taken out at the same time you close on the first mortgage.

The first mortgage is for 80 percent of the home’s value, so no PMI policy is required. The second mortgage, either a home equity loan or a home equity line of credit, finances the balance remaining after considering the down payment. An 80/20 piggyback may have been possible before, but traditionally a piggyback loan has been structured as an 80/10/10 loan, meaning the homeowner puts10 percent down. FHA loans give homebuyers the ability to finance a home with a small down payment.

The home buyer pays a mortgage insurance premium, and the size of the loan is limited based on housing costs in your county. Don Taylor is a certified financial planner and holds a doctorate in finance.