FLIGHT SCHOOL MISSION 8
Mission Briefing: Creative Financing, Part 3
Ways to reduce a borrower’s house payment:
1. Subordinate financing (Ground School Course IV, Lesson 5)
2. Interest-only products (Ground School Course VIII, Lesson 6)
3. Financed mortgage insurance (Ground School Course IV, Lesson 3)
4. Adjustable-rate mortgages (Ground School Course III, Lesson 1)
5. Temporary buydowns (Ground School Course III, Lesson 1)
Example: Subordinate Financing
Not only does subordinate financing lower monthly payments; it also lowers the borrower’s
cash-to-close.
Price of Home $200,000
Down Payment $20,000
Rate on First 6%
Rate on Seconds 7.5% 8.5%
LTV/CLTV 90% 80/10/10 80/10/10
Loan with Loan with
Normal Loan
Equity Line Fixed Rate Second
Loan Amount on 1st $180,000 $160,000 $160,000
Loan Amount on 2nd N/A $20,000 $20,000
P&I (1st) $1,079.19 $959.28 $959.28
P&I (2nd) N/A $125.00 $153.78
Taxes $250.00 $250.00 $250.00
HI $45.00 $45.00 $45.00
MI $93.00 N/A N/A
TOTAL PITI $1,467.19 $1,379.28 $1,408.06
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FLIGHT SCHOOL MISSION 8
Mission Briefing: Creative Financing, Part 3
Example: Interest-Only Products
Compare the 6% interest rate on a fixed-rate loan and 6.5% on an interest-only loan.
Price of Home $200,000
Down Payment $20,000
Loan Amount $180,000
Rate 6% 6.5%
Normal Loan Interest-Only
P&I $1,079.19 $975.00
Taxes $250.00 $250.00
HI $45.00 $45.00
MI $93.00 $93.00
TOTAL PITI $1,467.19 $1,363.00
Example: Financed Mortgage Insurance
Financed mortgage insurance allows a borrower’s payment to be reduced if LTV above 80%.
Price of Home $200,000
Down Payment $20,000
Rate 6%
Normal Loan Financed MI
Loan Amount on 1st $180,000 $184,680
P&I $1,079.19 $1,107.25
Taxes $250.00 $250.00
HI $45.00 $45.00
MI $93.00 N/A
TOTAL PITI $1,467.19 $1,402.25
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FLIGHT SCHOOL MISSION 8
Mission Briefing: Creative Financing, Part 3
Example: Adjustable-Rate Mortgages
An ARM will reduce the house payment with protective caps over the life of the loan.
Price of Home $200,000
Down Payment $20,000
Loan Amount $180,000
Rate 6% 5.5%
Normal Loan ARM
P&I $1,079.19 $1,022.02
Taxes $250.00 $250.00
HI $45.00 $45.00
MI $93.00 $93.00
TOTAL PITI $1,467.19 $1,410.02
Example: Temporary Buydowns
A 2/1 buydown will reduce a borrower’s payment for the first two years, thus allowing the
borrower to ease into home ownership.
Price of Home $200,000
Down Payment $20,000
Loan Amount $180,000
Rate 6% 4.5% - 5.5% - 6.5%
Normal Loan 2/1 Buydown
P&I $1,079.19 $912.03
Taxes $250.00 $250.00
HI $45.00 $45.00
MI $93.00 $93.00
TOTAL PITI $1,467.19 $1,300.03
NOTE: Use the 2/1 buydown to complete Case Study #17.
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FLIGHT SCHOOL MISSION 8
Mission Briefing: Creative Financing, Part 3
Qualifying the Borrower for More House
How can you assist borrowers in qualifying for a higher-priced home?
1. Recommend that the borrower pay off excessive debts.
2. Does the borrower pay alimony? Consider an FHA loan to qualify for a larger home.
Alimony payments are treated differently because of their tax consequences. FHA
guidelines permit the lender to subtract the monthly alimony payment from the borrower’s
gross monthly income before calculating ratios rather than including the alimony payment
with other monthly liabilities.
This makes a big difference in qualifying! Knowing this detail can build huge confidence with
your Realtors and borrowers.
Monthly income
MINUS alimony
Conventional (FHLMC) FHA
Income $4,250 monthly Income $3,500 monthly
PITI $1,000 PITI $1,000
Debts $300 Debts $300
Alimony $750 Alimony $0
Ratios 24/48 Ratios 29/37
On a conventional 95% LTV, With an FHA loan, these ratios
these ratios are very high fall well within the guidelines
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