Two ‘piggyback’ loans required for home sale

Mortgage adviser: Brenda Wyatt. Property: Single-family home in Alameda. Price: $875,000. 1st loan amount: $625,500. 1st loan terms: 30-year fixed at 4.25 percent with no points. 2nd loan amount: $74,500. 2nd loan terms: 30-year adjustable at 4.74 percent. Backstory: Unable to qualify for a jumbo loan, the client was referred to Brenda Wyatt by Julia Temple at Red Oak Realty, who was familiar with Wyatt’s expertise in navigating complex financing situations.

While the client had plenty of qualifying income, 20 percent down and great credit scores, she was not a big user of credit. Wyatt explained that this was the reason she had not qualified and suggested using a “piggyback” loan.

A piggyback loan describes two loans that are opened simultaneously to purchase a home, where one loan piggybacks on another. Most often this structure is used to cover a bigger percentage of the home’s purchase price.

The first mortgage is for 80 percent of the purchase price. Then a second loan is opened for a value of 10 percent of the price, and is often called a second mortgage, a home equity line of credit or a home equity loan. The borrower makes a down payment for the remaining 10 percent out of their own funds. The second number always describes the second mortgage, and the third number describes the down payment. In this case since the buyer was putting down 20 percent, the piggyback was actually 71.5/8.5/20.

In this scenario, the client was able to qualify under conforming credit qualification criteria, which are more lenient with regard to installment credit requirements. Wyatt went a step further and arranged underwriting approval for her clients prior to making an offer to provide leverage in an all-cash-offer market like the Bay Area. The clients’ offer was accepted and they closed within 21 days. Brenda Wyatt, Holmgren & Associates, (510) 433-8801, brenda@mortgage

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