Combo Loans Explained

Multifamily Capital Strategy Playbook - https://www.realestatefinanceacademy.... Lender-Ready Diagnostic Toolkit - https://www.realestatefinanceacademy.... Multifamily Investor Masterclass - https://www.realestatefinanceacademy.... For COMMERCIAL LOANS, visit https://www.evergreen.llc --- Combo Loans - Has a lender ever recommended to you to get a Combo Loan? In this video, I'll explain what a combo loan is, how it's used and how it benefits the borrower. A combo loan is actually two separate loans. It's frequently used when a borrower wants to get 80% or higher loan to value. The primary purpose of combo loan is to lower the overall payment for the borrower and potentially lower their interest rate. Let me show you the basics of a combo loan, how it's structured and how it works. Imagine a borrower is looking to purchase a $1 million property. And they're trying to borrow 800,000. That would be an 80% loan to value. A lender might offer 80% loan to value or the $800,000 loan at an interest rate of say 6%. One thing to know about loans that are 80% loan to value or higher is about the concept of private mortgage insurance or PMI. If a borrower is taking 80% or more leverage on a property, they're not only going to pay 6% on the interest rate, they're also going to pay up to two to 3% more for private mortgage insurance so that the lender can reduce their risk of the borrower defaulting. A combo loan gives the borrower a way around having to pay private mortgage insurance, and potentially also gives them a lower overall cost of funds. Let's look at an example, a lender might offer the borrower, say 600,000. As a first mortgage and then another 200,000. As a second mortgage. And this first mortgage might be at say 5%. The second mortgage might be it 10% at first glance. One might think that this is much more expensive, but the concept of "incremental borrowing cost" shows us that. When you look at the total payment of the $800,000 loan at 6% plus the private mortgage insurance would actually be greater than the combined payment of the $600,000 loan at 5% plus the $200,000 loan at 10%. I'll cover "incremental borrowing cost" in another video. But just know that the primary purpose of a combo loan is to save the borrower, the cost of private mortgage insurance, and potentially lower their overall cost of funds that they're paying to borrow the money. In order to determine which is the best option. Here are the steps that you need to take. The first thing you do is determine what the payment would be, including the private mortgage insurance on the singular loan. Take that total and then compare it to what would the combine payments be for the first and the second mortgage. If you find that the payment for the combo loan is the same or lower than the payment on the main loan plus the mortgage insurance, you would absolutely want to take the combo loan. In my full online courses, I teach all of the analysis related to combo loans, incremental borrowing costs and mortgage analysis. #personalfinance #TrevorCalton #investing #realestate #realestatefinance #mortgage #comboloan #realestateloan #stepbystep #stepbysteptutorial #diagram #example Other Queries : learn about real estate combo loan how to use a combo loan and how it benefits the borrower how combo loan benefits the borrower use of combo loan real estate combo loan real estate investing what are combo loans meaning of combo loans commercial combo loans pros and cons of combo loans combo loans explained buying a home home loans real estate finance investing in real estate explanation of combo loans