Profile picture for nrr5000

Is it better to put 20% down or do a 10% Combo Mortgage?

We are first time home buyers and I spoke with a mortgage broker this week.  After being given all of our information, running our credit reports, and me telling him that we wanted (and could afford) to put 20% down, he insisted that wasn't the right thing to do.  He said it would be more beneficial for us to save our money and do a Combo Mortgage which would consist of 10% down, 80% in a first mortgage at 30 years, and the remaining 10% in a second mortgage at 15 years for a higher rate (in order to avoid paying PMI).  I don't understand how having 2 mortgages could be more beneficial than just putting the 20% down when we already have it saved?
  • April 22 2011 - Staten Island
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Answers (10)

Not knowing the full financial picture it is tough to give the proper advice but I will suggest an 80/10 if you have other higher interest rate debt out there.  Alternatively, if you have improvements you want to do in the near future I will suggest holding on to the money.

You always want to look at all of your debt and want it at the most favorable terms for you and tax deductible if possible. 
  • April 23 2011
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its always gonna be different. If you are not sure go with the lesser amount and if you wish to make a principal payment later you can
  • April 22 2011
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I think it is interesting that broker "insisted" putting 20% down was not the thing to do, when it appears that you did not ask for his or her opinion. He or she also knew your financial picture including reserves. If you can avoid MI including seller (you in reality) paying single premium, it definitely has obvious benefits. Good income to replace down payment funds is always a big consideration re liquidity concerns. IMO your opinion is better........
  • April 22 2011
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SV, you are correct, in this case it would cost more to have 2 loans ( 90% CLTV)  because the OP only wanted 1 loan ( 80% LTV) to begin with. Mark's suggestion is also good since there are several cost effective MI options with lender paid, borrower paid upfront, etc.    
  • April 22 2011
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I always lien towards keeping my funds liquid and invested at low risk. A home is niether. Remember, if you ever need that money, you will have to pay to get it, if you can.

I don't have a problem with going with only putting 10% down, but I would use one loan and either roll in the PMI single premium or get the seller to pay the fee. You will have to escrow for taxes and insurance, but you will not have monthly mortgage insurance.
  • April 22 2011
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Profile picture for sunnyview
Thanks for the info Clay. You're always such a smartie ;) I would have thought that two loans might mean more fees. 
  • April 22 2011
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When we use a 2nd for an 80/10/10 we do not make any money on the 2nd, in fact in lowers the total compensation because it lowers the loan amt on the 1st. In your case, he is suggesting an 80/10 so that you keep more money wherever you have it invested with the expectation you will get a better return. I am guessing the 2nd rate will be over 7.5% so if you have the money to put down 20% then I would do that, just my opinion. This thread says Staten Island, are you in NY? 
  • April 22 2011
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Profile picture for sunnyview
I would think that the lender might get more fees on two mortgages, but I don't know that for sure. Personally, I would go with 20% down if you can. Traditionally those mortgages are safer and cheaper.

You can ask the broker for a fee statement for both loans to compare them, but do not get pushed into two mortgages when you can do one comfortably with 20% down. It's your choice.
  • April 22 2011
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Yes, we would have plenty of reserves left. We both have jobs and good credit scores.  Does the broker get more money from the bank if he talks us into 2 mortgages?
  • April 22 2011
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What will you have left in savings after 20% down and closing costs/prepaids? If you will have several months of reserves, then put down 20%.
  • April 22 2011
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