subject: Second Mortgage Options for First-Time Buyers [print this page] Second Mortgage Options for First-Time Buyers
Soft mortgage loans are favorable solution for first-time buyers when purchasing a new home. They are often used as a complimentary financing to the left over costs of the first mortgage loan plan granted (first mortgage plans usually cover 80% of the market price of the property). Soft loans are tailored to individuals of lower income who cannot manage high down payments. In general lenders, offering such home loans work close with government programs on improving the affordable housing opportunities for less than wealthy individuals.
The amount of the soft loan is considerably less than the one of the first mortgage loan, its term is much shorter from 5 to 15 years. It is characterized with lower than market rates (from to points lower) and requires lower down payment. Its principal is deferred for 10 years and public funds are used to pay for most of its interest (up to 75%) during the first five years (the percentage decreases gradually until the 10th year when it ends).
The soft loan makes up for the balance up to 100% of the price of the property, however another mortgage loan offers even higher loan 125% of the amount of the investment. The 125 Second mortgage similarly to the soft loan is a complimentary loan to a first loan mortgage, however it has much more in common with the equity loans. This 125 second loan is not based on one's income rather than on the property's equity. It charges an initial fee in addition to the closing costs. Its main advantage lays in the fact that the 125 second loan grants one more money than the value of his property and in case the property prices rise the borrower gains on the increased equity of his home he has to pay less on his loan. The drawback consists in the higher interest rates that the ones charged on the first mortgage and also one cannot sell his property until he has fully repaid his obligations on the loan.
