Wouldn't you need 20% equity in the property in the first place to acquire a 2nd mortgage? If not, how would you go about acquiring a 2nd mortgage without 20% equity in the property?
If you had the equity you wouldn't need the second.
It goes like this...
You borrow $80K for a property that is worth $100K. If the property were to forclose, it would cost them aprox. $20K to go through the foreclosure process. For that reason, over 80% LTV is considered a higer risk, because they won't just break even, they'll loose money if they foreclose on you.
However, there are some lenders that enjoy the higher returns that come with higher risk loans (ie, seconds). So there's a first at 80% who is happy because they're secure, and a second at 20% who is happy because they're getting 12%.
If you had 20% equity in the property you wouldn't need to obtain financing for something you already owned. The second would be used to cash out the seller.
I am trying to look at this as if I were purchasing a $100K rental property. If I were to pay no money down is there anyway to get a 1st and 2nd mortgage on it to avoid PMI?
What you are asking about is very do-able. I will tell you how I did my 80-20 loan. I found a fourplex that the seller wanted 135k. It rented for 400 x 4 per per month. I was able to secure a loan for the 8.1% on 110k and a second at 14.1% on 27.5k. that total is 137.k I was able to borrow an additional 2% to pay for some of the closing cost. So I got a loan for 102% of the purchase price. Sure the interest rate on the second and first are a bit high but the property still has a positive cash flow of 258 per month. I have owned it one year and the value has increased to 160k and I have increased rents for a total of 1720 per month.
Therefore when you consider PMI is not tax deductable and mortgage interest is 100% tax deductable, which is the better?
So fear not David if you have found the right property to make a 100% purchase then go for it.
Thanks for the information Vern. I guess the main reason I am asking is because I already own two rental properties and I would like to be able to cut out the PMI on those two. Will lenders ever lend for a 2nd mortgage to pay down the first on a property that I already own? I only have about 8% equity in each property. Would I still be able to do the 1st and 2nd mortgages?
Well I have not heard of anyone doing such a thing, but I have no reason think that anything in real is not possible. Make some calls around. DO NOT LET THEM PULL YOUR CREDIT SCORE each time that you inquire.
Very simple,
Instead of having one loan, you simply reduce the first loan to 80% or less, with the second making up the difference of the original loan amount.
Respectfully,
Phil
Phillip Herrejon
President of the Chicago Real Estate Investment Club
Investment Property Finance Consultant
312.375.7132
Wouldn't you need 20% equity in the property in the first place to acquire a 2nd mortgage? If not, how would you go about acquiring a 2nd mortgage without 20% equity in the property?
If you had the equity you wouldn't need the second.
It goes like this...
You borrow $80K for a property that is worth $100K. If the property were to forclose, it would cost them aprox. $20K to go through the foreclosure process. For that reason, over 80% LTV is considered a higer risk, because they won't just break even, they'll loose money if they foreclose on you.
However, there are some lenders that enjoy the higher returns that come with higher risk loans (ie, seconds). So there's a first at 80% who is happy because they're secure, and a second at 20% who is happy because they're getting 12%.
If you had 20% equity in the property you wouldn't need to obtain financing for something you already owned. The second would be used to cash out the seller.
Get it???
I am trying to look at this as if I were purchasing a $100K rental property. If I were to pay no money down is there anyway to get a 1st and 2nd mortgage on it to avoid PMI?
Hello David,
What you are asking about is very do-able. I will tell you how I did my 80-20 loan. I found a fourplex that the seller wanted 135k. It rented for 400 x 4 per per month. I was able to secure a loan for the 8.1% on 110k and a second at 14.1% on 27.5k. that total is 137.k I was able to borrow an additional 2% to pay for some of the closing cost. So I got a loan for 102% of the purchase price. Sure the interest rate on the second and first are a bit high but the property still has a positive cash flow of 258 per month. I have owned it one year and the value has increased to 160k and I have increased rents for a total of 1720 per month.
Therefore when you consider PMI is not tax deductable and mortgage interest is 100% tax deductable, which is the better?
So fear not David if you have found the right property to make a 100% purchase then go for it.
Thanks for the information Vern. I guess the main reason I am asking is because I already own two rental properties and I would like to be able to cut out the PMI on those two. Will lenders ever lend for a 2nd mortgage to pay down the first on a property that I already own? I only have about 8% equity in each property. Would I still be able to do the 1st and 2nd mortgages?
Thanks again for your help!
:Hello David,
Well I have not heard of anyone doing such a thing, but I have no reason think that anything in real is not possible. Make some calls around. DO NOT LET THEM PULL YOUR CREDIT SCORE each time that you inquire.