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COMBO
HOME LOANS

A COMBO loan is the combination of TWO different home loans to purchase a home.  First, we finance the majority of the purchase price (75% - 80%) using a standard CONVENTIONAL loan, and then cover another portion (10% - 15%) with a second loan: a Home Equity Line of Credit.  Your down payment (10%), plus both loans, adds up to 100% of the total purchase price   Both loans close on the same day.


About HELOC Financing

 

The Home Equity Line of Credit (HELOC) is an open-end revolving line of credit with interest-only payments for the first 10 years.  The rate fluctuates monthly with the Prime rate. You may pay this line down as quickly as wish to reduce interest charges over time.

 

A HELOC functions for the first 10 years similar to a credit card, in that as you pay down the balance, the more funds become available to spend in emergency situations.  

 

Why Use COMBO Financing?  
Using combo financing has its advantages.  Let's take a look at some of the most common examples of how Combo financing can help:

 

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      DOCUMENT CHECKLIST

At a Glance

Minimum Down Payment

≥ 10%

Minimum mid-credit score

700 (for 90% total combined loan amounts on an Owner-Occupied Home)

720 (for 85% total combined loan amounts for a Second/Vacation Home)

PMI (Private Mortgage Insurance)

None, as long as the Conventional 1st loan is ≤ 80% of the purchase price

Occupancy

Owner Occupied and Second Homes Only

Min/ Max Loan Amount

$100,000 - $806,500 (1st Conventional Loan)
$50,000 - $500,000 (HELOC)

Loan Repayment Terms

30 Year Fixed Rate (1st Conventional Loan)Interest-Only Credit Line (HELOC)

Maximum Debt-vs-Income Ratio

45% of all debts, including the new home  (Owner-Occupied Home)

43% of all debts, including the new home  (Second/Vacation Home)

Prepayment Penalties

None

EXAMPLE 1: AVOID JUMBO FINANCING

Easier to Qualify vs Jumbo.  
When it comes to qualifying, Jumbo financing can be much more challenging than Conventional financing.

For example, if you have a recent housing event such as a foreclosure, bankruptcy, short sale, etc in your history, you may not qualify for a jumbo loan, depending on the event. With our COMBO loan, we use Conventional underwriting guidelines, which are less strict than Jumbo. If you have had a recent housing event, be sure to see our Waiting Period Chart for Conventional Financing before applying for a COMBO loan.

Lower down payment requirement & Fixed Rates.  Jumbo financing often requires a higher down payment than 10%. Also with most Jumbo financing programs, the interest rate is usually only fixed for 5 - 10 years.  With a COMBO, the majority of the financing is fixed for 30 years.

Example 1:

COMBO LOAN STRATEGY

TO AVOID JUMBO FINANCING

Example Home Purchase Price:  
$1,100,000

$806,500
Conventional Loan
(~73% of purchase price)

$110,000
Down Payment
(~10% of purchase price)

$183,500
Second Loan (HELOC)
(~17% of purchase price)

In this example, we've structured the first loan at $806,500 (the current maximum Conventional loan size) so that the majority of the financing is at a fixed interest rate.  Then created a HELOC to fill the rest up to 90% of the purchase price.  After that, the down payment completes the rest.

Unconventionallending.com

EXAMPLE 2: MAXIMIZE CASH-OUT

GET MORE CASH-OUT WHEN REFINANCING  
When financing a home with Conventional financing, the maximum loan size is limited to 80% of the appraised value of the home.  

Here is where COMBO Financing is helpful.

You can either:

Refinance the first Conventional loan as a "cash-out" mortgage, and create a Home Equity Line of Credit for the remaining 10%, giving you a combined equity leverage of 90% of the appraised value.

Refinance your first loan as a "rate & term refinance" (meaning only existing mortgage and settlement charges are rolled into the new loan), and create the Home Equity Line of Credit for the cashout proceeds.  This can often helpthe homeowner get a lower rate on the first fixed-rate Conventional loan.

Example 2:

COMBO LOAN STRATEGY

MAXIMIZE CASH-OUT WHEN REFINANCING

Example Appraisal Value:  
$500,000

$400,000
Conventional Loan
(80% of appraisal value)

$50,000
(UNFINANCING EQUITY)

$50,000
Second Loan (HELOC)
(25% of appraised value)

In this example, we've structured the first loan at $400,000 (80% of the purchase price), then created a new HELOC to fill the rest up to 90% of the appraisal value.  The remaining 10% equity remains unfinanced.

Unconventionallending.com

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KEY FEATURES

Low Down Payment- as little as 10% down required.

Semi-flexible credit score requirements – scores as low as 700.  (720 for Second Homes)

Gift Funds from a family member are acceptable.

Allows for non-occupying co-borrowers (family can help co-sign on the loan to qualify)

Self-Employed borrowers - most recent year's tax return can be used to qualify for income (instead of averaging two years)*

 

**Must be in business for 5 years, otherwise the traditional method of averaging the most recent two years tax returns applies.)

Interested Party Contributions (IPC's)- up to 6% - 9% of purchase price, depending on down payment.  The following are all considered 'Interested parties': Sellers, Realtors, Builders, etc.)

Occupancy - Owner Occupied or Second/Vacation Home

If the LTV of the first loan is ≤ 90% of purchase price, the max contribution max is 6%

If the LTV of the first loan is ≤ 75% of purchase price, the max contribution max is 9%

ACCEPTABLE HOME TYPES

  • Single Family Homes
  • Multi-Unit Homes (2-4 units)
  • Townhomes / Villas
  • Condominiums - Condo association must qualify for a full financial review.
  • Specialty home types - on a very limited basis. (log homes, dome homes, stilt homes, etc.)*

*For these property types, we suggest our Private Client Portfolio Program.

NON-US Citizen Requirements

LOAN SIZE LIMITS

For most counties in Florida, the maximum loan size for a single-unit homes is currently $806,500. Click HERE for a map listing of all US Counties.

Loan size of the first Conventional loan is limited to the Conventional loan size limit. Currently $806,500.

The Home Equity Line of Credit minimum/ maximum line size:

  • $50,000 - $500,000 for Primary Residence
  • $50,000 - $250,000 for Second / Vacation Homes

 

GENERAL QUALIFICATION NOTES

The Underwriting approval for both loans generally follows the same conventional underwriting guidelines for both loans, but may have certain exceptions, such as:

  • Minimum middle credit score to qualify:
  • Primary Residences: 700
  • Second/Vacation Homes: 720

Maximum debt ratio limit:

  • 45% for primary residences
  • 43% for second/vacation homes.
  • Max Combined Loan-to-Value (both loans):
  • 89.99% for primary residences
  • 85% for second/vacation homes.  

This is not a commitment to lend.  Not all borrowers will qualify for the loan programs listed.  All program terms and conditions are subject to change and may be discontinued without prior notice.  Contact loan originator for program questions and scenarios.