Can the down payment on a house come out of the home loan if you only have a small amount to put down yourself?

Answer

Yes, let's say you have a down payment of 8%. You would take out a mortgage for 80% of the value of the home. You would then take out either a second mortgage or home equity loan for 12% of the value of the home. You avoid paying PMI, but your second loan is usually a 15 year loan with a flexible interest rate of prime + 1.5 so your monthly payment will vary depending on where prime is. There are other ways, such as an FHA loan as well.

Answer

Another possibility depending on the relationship between buyer and seller.

You can do a "sellers held back 2nd mortgage". A sellers 2nd is basically just like any other 2nd mortgage but it is held by the person selling the property, it's a lien like any other mortgage against the home. The buyer and seller set up a payment plan for a 3 of years and interest rate and it is included in the sales contract. This benefits people with poor credit who can't obtain enough financing, say you need 90% but you only qualify for 80%. Then you can get that extra 10% through a sellers 2nd. The seller ofcourse must agree to it and the bank must also ofcourse allow sellers seconds.

The other option is a "Gift Of Equity".

A GOE can be done between family members, it's like a sellers second except you don't pay back the GOE.

The example is basically, you need 90% you qualify for 70%. The seller gives you 20% of the equity of the home as a gift, so on a 100,000 dollar home it works like this. They are not lowering the sales price, the price stays at 100,000 but they give you 20,000 as a gift of equity. So while you only qualified for 70,000 from the bank that gift of equity has now given you the ability to purchase the home without laying out anything about your 10%.

The catch is that this can only be done between blood relatives.

First answer by Eric Gass. Last edit by Edward David. Question popularity: 153 [recommend question]