See: Second Mortgage.
It’s a big day for Danny and Sandy: they’re finally ready to buy their first house. They’ve gotten approved for a $400,000 mortgage loan, which is great, but there’s just one itty bitty teensy weensy issue: there is no way they’re going to be able to come up with the $80,000 they need for the down payment on the house. After all, who has eighty grand lying around? Not these two.
Luckily, there's an option by which they can take out an additional loan for the down payment amount. This loan is referred to as a “silent second mortgage.” But before Danny and Sandy get too excited, there are a couple things they should know about these types of loans.
First, they’re called “silent second mortgages” because, historically, these extra loans were taken out without the knowledge of the first lender. This is a big no-no. In fact, it’s more than a no-no; it’s illegal. Why? Because when we get approved for a mortgage, our lender is supposed to know about all additional loans, debt, assets, financial obligations...everything. If we sneak around and get a secret loan to cover our down payment, we’re technically committing mortgage fraud, which means we could end up facing big fines, and even jail time, if we get caught. And that would be...bad.
But there is another way. The term “silent second mortgage” can also refer to a loan-securing practice that is similar, but far less illegal. We’re talking about DPAs, or Down Payment Assistance Programs. These state-supported programs allow homeowners to take out special additional loans specifically designed to help with down payment costs. And while they’re not as “secret” as their illegal cousins—our first lender is totally going to find out about any DPA action we’re involved in—they can make homeownership an achievable dream for folks like Danny and Sandy.
DPA-type silent second mortgages are indeed additional loans, but they usually come with more favorable terms than our loud first mortgage. The interest rate might be lower, and it might not be compounded as often. Also, in many cases, we don’t have to start paying the loan back until we sell the house, which can help make monthly payments easier to manage while we’re in the house. If Danny and Sandy decide to go the (legal) silent second mortgage route, it sounds like they could be enjoying some summer nights in their own backyard in no time.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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