Mortgage structure that uses more than one loan at the same closing to finance a property purchase.
A combo loan is a mortgage structure that uses more than one loan at the same closing to finance the same property purchase.
A combo loan matters because the borrower is not just choosing one mortgage amount. The transaction may include a first mortgage and a second mortgage, each with its own payment, lien position, pricing, and approval requirements.
It also matters because combo loans are often used to manage down payment size, avoid or reduce mortgage insurance, bridge a cash gap, or pair a primary mortgage with approved subordinate financing.
Borrowers encounter combo-loan structures during preapproval, product selection, and closing. The lender must understand how both liens affect Combined Loan-to-Value Ratio (CLTV), Debt-to-Income Ratio (DTI), and title priority.
The term becomes practical when the financing plan includes a first mortgage plus a second loan or assistance lien.
A buyer uses a first mortgage for most of the purchase price and a smaller second mortgage for part of the remaining amount. Together, the two loans make up the combo-loan structure.
A combo loan differs from Piggyback Loan because piggyback loan is a common kind of combo structure, while combo loan is the broader idea of using multiple loans together.
It differs from 80-10-10 Loan because 80-10-10 is one specific combo-loan split.
It also differs from Community Second Mortgage because a community second is usually a specific subordinate assistance structure, not every two-loan arrangement.