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When I was a kid I remember my parents celebrating having paid off the second mortgage on their house. But I haven’t heard that term decades later. Do they exist? Do they have a different name? And can a seller ever offer them?
For those who don’t know, they were a separate loan taken when the house was purchased, for a smaller amount of money but paid off in just a few years. I’m guessing two different interest rates were involved. Posting in this section rather than the “mortgage” section to get more eyes on it.
For those who don’t know, they were a separate loan taken when the house was purchased, for a smaller amount of money but paid off in just a few years.
It was called an 80/20 loan for buying a home without coming up with a cash down payment. The first mortgage would be a standard mortgage for 80% of the home price and the 20% would be a Home Equity Line of Credit (HELOC) to make the down payment.
I don't think lenders are allowing that any more since the real estate crash of 2008. I'm sure that 80/20 loans contributed their share of damage along with sub-prime loans.
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can a seller ever offer them?
That's called seller financing or OWC (Owner will carry) which means that the seller is actually financing part of the purchase price for the buyer. Desperate sellers do that for people who can't qualify for loans or they are trying to unload a crappy property.
A long time ago mortgages were assumable without qualifying and a seller could have the buyer assume the first mortgage, pay some cash, and the seller would finance the rest. A high risk endeavor.
These days it's more likely to happen when a seller owns a home free and clear so there's no bank involved in the transaction.
And, of course, HELOCS still exist for people who have paid down their mortgages far enough to have a significant amount of equity with which to borrow against.
Thanks adjusterjack. The era I referred to was the 1950s/early 60s. I guess it was different then. I was just casually brainstorming for potential ways for families to still buy houses when interest rates were going back up. I’m guessing there is no way a 3% mortgage could be assumable. And with prices up 20% in a year, how could a new buyer enter the market.
Your explanation of the 80/20 makes sense. But is the HELOC based on the value of the house being bought somehow? I don’t see how there could be any equity at closing.
But it never hurts to look outside the envelope for novel ideas.
When I was a kid I remember my parents celebrating having paid off the second mortgage on their house. But I haven’t heard that term decades later. Do they exist? Do they have a different name? And can a seller ever offer them?
For those who don’t know, they were a separate loan taken when the house was purchased, for a smaller amount of money but paid off in just a few years. I’m guessing two different interest rates were involved. Posting in this section rather than the “mortgage” section to get more eyes on it.
Second mortgages do exist today, but typically aren't used in the purchase of a residential property. They are more apt to be used by someone who has an existing low interest rate first mortgage on their house and wants to borrow money against the house without disturbing the first mortgage.
Some banks will make these loans in the form of a HELOC to well qualified homeowners. Other lenders may make second mortgage loans that the banks won't touch, but the interest rates are typically rather high and the terms rather strict.
Why don't you tell us (in general) what situation you're trying to deal with, and we can make recommendations that may be suitable and helpful to your situation. Or, we may tell you that you're wasting your time since you are unlikely to find a lender who would touch that deal.
I've had personal experience/dealings with second mortgages on numerous occasions from both ends of the deal and in purchasing discounted mortgages so I think I could tell you if you're likely to find the type loan you may be looking for. But first, I need to know what you're looking for and what your financial situation is. If you don't want to discuss it on the open forum, you could send me a Direct Message. BTW, I'm not in the business now so I'm not looking to make any deals myself.
Thanks adjusterjack. The era I referred to was the 1950s/early 60s. I guess it was different then. I was just casually brainstorming for potential ways for families to still buy houses when interest rates were going back up. I’m guessing there is no way a 3% mortgage could be assumable. And with prices up 20% in a year, how could a new buyer enter the market.
Your explanation of the 80/20 makes sense. But is the HELOC based on the value of the house being bought somehow? I don’t see how there could be any equity at closing.
But it never hurts to look outside the envelope for novel ideas.
Actually, if it's an FHA mortgage, it should be assumable, with some possible restrictions.
Actually, if it's an FHA mortgage, it should be assumable, with some possible restrictions.
True, but the one who is assuming the mortgage still has to qualify. That's not what adjusterjack was referring to.
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Originally Posted by adjusterjack
A long time ago mortgages were assumable without qualifying and a seller could have the buyer assume the first mortgage, pay some cash, and the seller would finance the rest. A high risk endeavor.
In 1991, I bought my first home that way. (My income stream wasn't easily documented so I couldn't qualify for a mortgage as high as I needed.) The rate was a couple of points higher than market, but I did not have to qualify. All I had to do was come up with enough cash to make the buyers sell me the house and have me take over the mortgage payments and they walked away. No hassle, minimal paperwork.
Thanks adjusterjack. The era I referred to was the 1950s/early 60s. I guess it was different then. I was just casually brainstorming for potential ways for families to still buy houses when interest rates were going back up. I’m guessing there is no way a 3% mortgage could be assumable. And with prices up 20% in a year, how could a new buyer enter the market.
Your explanation of the 80/20 makes sense. But is the HELOC based on the value of the house being bought somehow? I don’t see how there could be any equity at closing.
But it never hurts to look outside the envelope for novel ideas.
I had multiple mortgages on a house. In the early 1980's I bought a house from the builder. Mortgage rates were about 16-17%. The bank issued me a first mortgage in the amount of the outstanding builder's loan at a reduced rate and issued a second mortgage for the remainder of the purchase price at market rates. I never could have afforded the entire purchase at market rates. Both were 30 yr mortgages.
I had excellent credit history and a strong work history.
Thanks everyone who gave info. I don’t need this for myself but was just trying to imagine ways that a younger person could maybe buy a house purchased by the seller at low mortgage rates and benefit at least slightly from the previous owner helping him.
Not by a below market price but by somehow helping the new buyer via the interest rate side. Or maybe helping create a qualifying down payment loan. I feel bad for anyone over 35 who has a good job but will eventually end up paying twice the cost of the house due to interest payments. I know that goal is relatively naïve. But I have recently seen ads where sellers are offering to pay points on buyers mortgages.
But I have recently seen ads where sellers are offering to pay points on buyers mortgages.
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