Combination Mortgage

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Definition

A combination mortgage is comprised of two separate mortgages applied on the same property, from the same lender for the same borrower. In a typical combination loan, the borrower applies for and receives two loans, ideally from the same lender. The first loan basically provides funds for the larger percentage or the total amount of money that the borrower requires. The loan is usually used by the borrower to pay for the construction costs of a new home at the completion of construction. It is a variable rate mortgage with lower interest rate. To get qualified for this loan, one has to have a good credit score. The second loan is usually used to pay for the initial loan and becomes the permanent mortgage on the home. It has a higher interest rate or a fixed rate.

Combination mortgage tends to be most common type of loan to buy an existing property in the housing markets. It allows the buyers to borrow more money than their down payment might otherwise allow.

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LAYMEN TERMS

You can take a Combination mortgage to buy or build a home which consists of two loans. First loan would take care of all the expenses for the construction of the home and the second loan would be used to pay for the first loan. Later, the second loan is carried on as one loan till the end for the borrower.

HOW DOES THIS TERM APPLY TO YOU

A person with a good credit score can opt for the combination mortgage. For someone who is buying an existing home, a combination loan may take the form of a piggyback. This mortgage consists of two loans with one down payment. The primary loan covers 80% of the home's purchase price, the second loan another 10%, and the buyer makes a 10% cash down payment.

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