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California Credit Union Launches 80/20 Piggyback Mortgage


Could 2016 be the year that the piggyback mortgage returns?

Well, one California credit union is taking things back to 2006 with their new “Premier Purchase Program.”

In a nutshell, the new program being offered by AltaOne Federal Credit Union is an 80/20 combo loan, or an 80% first mortgage and a piggyback second mortgage for the remaining 20%. Yes, that’s zero down if you’re following along.

They aren’t the first to provide 100% financing again, but they’re unique in that you get two loans instead of one, a practice that was very common during the boom in the early 2000s.

[Check out the zero down POPPYLOAN being offered by one Bay Area credit union.]

Similar and Different

This new loan program, which was announced in late December, comes with a 30-year fixed first mortgage and a 10-year fixed second mortgage.

It’s similar to the old offerings seen in 2006 but a little bit different because the second mortgage has a shorter term.

To me it’s a compromise to offering zero down financing in an age when such loans are seen as toxic.

The shorter term means the borrower will actually gain home equity at a decent clip despite putting nothing down at the outset.

This differs from the old 80/20 loans that often permitted interest-only payments on both loans, relying on home price appreciation to gain equity.

That didn’t work out over the long term so perhaps this will allow homeowners to keep their heads above water even if home prices remain flat or dip a bit.

Lenders will be protected if this is the case, which makes this seemingly high-risk loan product viable again.

The loans are also fixed, unlike their predecessors that were often adjustable-rate, another layer of risk.

If you’re interested, the product is available on owner-occupied homes, including both one- and two-unit properties.

I’m assuming you’ll need good credit to get approved for this program and the first mortgage amount will likely be limited to the conforming loan limit.  After all, that was one of the purposes of splitting loans up into two parts, the other to avoid PMI.

The company simultaneously launched their “Equity Builder Loan,” which is a home equity loan that must be used for home improvement.

It’s a 10-year fixed loan that requires the use of a contractor for things like a new pool, solar installations, renovations and so on. Again, the property must be owner-occupied.

The benefit is the shorter loan term, which means you won’t pay as much interest (you should also get a lower interest rate), but the monthly payments will be higher as a result.

Look out for more and more lenders offering these types of solutions in 2016 thanks to rising home prices and rates. Let’s just hope they stay conservative for a while so things don’t get completely out of hand.

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