How to Fund Your Down Payment: Options for First-Time Buyers

Hey, what’s up, everybody! Chad Helmcamp here with BWC Lending, and today we’re talking about a topic that might sound a little confusing at first: second liens.

But don’t worry, I’m here to break it down for you in simple, easy-to-understand terms. So grab your coffee and let’s dive in!

So, What’s a Second Lien?

In the simplest terms, a second lien is a loan that stands in second position behind a primary mortgage—hence the name "second lien." Basically, if you already have a primary loan on your home, a second lien would be like the backup quarterback. They’re not the star of the show, but they’re ready to step in when needed.

Second liens can come in handy in a few situations, so let’s explore how they work and when you might use one.

1. The “Piggyback” Loan: Avoiding Private Mortgage Insurance (PMI)

Now, here’s where it gets fun. You’ve probably heard of the term “piggyback loan.” No, it’s not an actual piggyback ride (but that would be cool). It’s a type of second lien that people often use to avoid paying private mortgage insurance (PMI). If you don’t have 20% to put down on a home purchase, you’ll usually end up paying PMI. But with a second lien, you can split the down payment between two loans—thus, avoiding PMI.

For example, if you’re buying a $500,000 house and only have 5% down, you could:

Get a primary mortgage for $400,000 (80% of the house)
Get a second lien for $75,000 (15%)
Put down $25,000 as your 5% down payment

That’s called an 80/15/5—in other words, 80% for the primary loan, 15% for the second lien, and 5% down. Ta-da! You just saved yourself from paying PMI and could potentially save a chunk of money each month.

2. Second Liens for Jumbo Loans (More Money, Less Down)

But wait, there’s more! If you’re looking to buy a larger home and don’t quite have enough for the down payment on a jumbo loan (yep, those big fancy ones), a second lien can help there too. It’s another way to get that extra cash you need for a bigger home without committing to a massive down payment.

It’s like having your cake and eating it too, but without the giant forkfuls of financial stress.

3. Home Equity Line of Credit (HELOC): Accessing Your Home’s Cash

Now, let’s talk about refinancing. With rates on the rise, refinancing into a new loan at a higher rate doesn’t always make sense. But, you might still want to access some of the equity in your home. That’s where a home equity line of credit (HELOC) comes in.

A HELOC is another form of second lien—basically, it’s a line of credit that’s tied to the equity in your home. You can tap into that line of credit when you need extra cash, whether it’s for home improvements, paying off debt, or even just living your best life.

Why not use a second lien to access some of your hard-earned home equity without messing with your primary mortgage?

Final Thoughts: Second Liens—Not as Scary as They Sound

So, there you have it! A second lien might sound a little intimidating, but it’s actually a pretty handy financial tool when used the right way. Whether you’re looking to avoid PMI, buy a bigger home, or access your home’s equity, a second lien could be the solution you’re looking for.

If you’ve got questions or want to chat more about how a second lien could work for you, don’t hesitate to give me a call. I’m here to help!

Want to learn more? Watch the full video on YouTube here! [Watch Video]