Vail Daily column: More options now available for buyers
When it comes to financing residential real estate, no two transaction are the same. For that matter, no two borrowers are the same. This is especially true when it comes to financing properties with less than 20 percent equity or less than 20 percent down payment.
For many years, having less than 20 percent equity in a property meant that the borrowers were forced to encounter less than desirable financing options. For a long period of time, the only viable financing options for such scenarios were loans with a mandatory mortgage insurance premium. During the past year or so, more financing options are becoming available for such scenarios. However, it should be noted that mortgage insurance premiums are now more favorable, less expensive and in some instances even tax deductible. Nonetheless, it is encouraging to see that other options are now available in the current market place.
Now, borrowers with less than the 20 percent equity mark can finance properties with a second loan in lieu of mortgage insurance. What may make this option more appealing is that the second loan can now be structured as a standard 30-year fixed rate mortgage. A financing option such as this is more appealing to some borrowers. In many such instances both the first and second loans in place can both be a standard fixed-rate mortgage with the monthly payments of both loans going toward principal and interest with the mortgage interest paid on both loans being tax deductible in many scenarios.
To preface that summary, there are certain criteria and variables that need to be met in order for a borrower to qualify for this type of financing structure. Ten percent equity is required as a minimum. The loan amount on the primary financing is capped at $625,500, which is specific to Eagle County. A maximum of $250,000 is permitted for the second lien 30-year fixed rate mortgage, and in most cases the interest rate for the second loan is roughly 1 percent or more higher than that on the first loan.
Financing with two fixed rate loans such as this offers the appeal of being in a more traditional type of financing structure without having a mortgage insurance premium in place. The second loan can be paid down or off without penalty as finances permit. Combined 30-year fixed financing such as this can be used for primary and secondary homes alike and is available to most property types.
Every scenario is in fact different and needs to be reiterated. Some scenarios with less than 20 percent equity may be better suited for financing with mortgage insurance and vice versa. But the fact that multiple options are available for borrowers in indeed a positive aspect within the mortgage industry and is good for borrowers. It has been well documented lately that the mortgage industry is in the midst of significant and as some might say onerous new regulations. These new rules and regulations are a learning curve for everyone involved and are in fact making mortgage financing more onerous in the short run for everyone involved. In light of the new TRID rules and regulations now in place, it is encouraging to see products such as a 30-year fixed rate second mortgages being available to borrowers.
Now more so than ever, the mortgage industry and financing residential real estate is a complex and intricate business. Viable and advantageous financing options are readily available, but the assistance of a seasoned mortgage professional needs to be sought to properly navigate and analyze the options and the transaction as a whole.
William A. DesPortes, of Central Rockies Mortgage Corp., can be reached at 970-845-7000, ext. 103, and by email at email@example.com.