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Glenn Said:

Can a home loan consist of two separate loans combined to cover one loan total?

We Answered:

The structure is not uncommon. More so when the buyer has little to put down. The structure helps to avoid paying PMI.

The credit score is a bit low so the borrower is getting hit with a high interest rate. Likely to be some pretty steep fees being paid. Some of the time the rate is higher and the fees are lower as the lender will pay the broker after the loan closes so that there are lower fees. All legal and mostly covered by the estimate and the closing HUD statement.

Watch out for prepayment penalties as that is also common with such a deal when the credit score is average to low.

To improve things will require a bigger down payment and for the past credit problems to be cleaned up. If there is a plan to do so then maybe starting with this loan package makes sense and then refinancing in 1-3 years. Just check the prepayment fees if she does want to do a refinance in a few years.

Note that a 30 years fixed loan for good credit should be closer to 6.25%.

Checking that they are not in over the head is a great idea. Even if they can afford the payments do they have a cash buffer if someone is looses their job? What about fixing the place up (landscaping, curtains and other things that a new home needs)? Will they need furniture or do they have enough for a home this size? Those are all costs that seem to pop up even when it looked like you can afford the payments.