What is a Combo Loan?

A combo loan is a type of mortgage that is designed to help you get a more affordable mortgage payment. Here are the basics of the combo loan and how it works.

Structure

In reality, a combo loan is actually 2 different loans. You are going to get a primary mortgage for 80% of the value of the house and a secondary mortgage for the remaining 20% of the value of the house.

Eliminate PMI

The reason behind this loan structure is to eliminate PMI. If you have a loan that covers more than 80% of the value of the house, you are going to have to pay private mortgage insurance. Lenders require private mortgage insurance as a way to guarantee their investment. If you default on the mortgage, the private mortgage insurance company is going to come in and reimburse the lender. This means that you are going to have to make a premium payment to the private mortgage insurance company every month even though you do not get anything out of it. In order to eliminate this need, you can borrow 20% from a different lender and make 2 separate payments.