The price of homes is steadily climbing. In order to buy a home, borrowers are turning increasingly to 100-percent financing and home loans where mortgage insurance is not part of the deal.
The 80 20 mortgage loan is one such loan. With an 80 20 mortgage loan, the home buyer actually takes out two loans. The first part of an 80 20 mortgage loan is for 80 percent of the purchase price. At the second part of an 80 20 mortgage loan is for 20 percent of the home’s price. The closing costs of an 80 20 mortgage loan are something that the buyer is expected to come up.
According to Anthony Hsieh, president of HomeLoanCenter.com, an 80 20 mortgage loan “allows people to buy without a down payment.” An 80 20 mortgage loan is also for people who would rather leave their savings alone in buying a house.
Most people who take on an 80 20 mortgage loans are usually young professionals. Hsieh further describe that these are “people who have gotten out of college and have good jobs.” An 80 20 mortgage loan is for people who have good credit but do not have a lot of savings to their name in order to afford down payments of most homes.
80 20 Mortgage Loans for Renters
80 20 mortgage loans are also targeted to those people who are renters or renting apartments. These types of people can afford monthly rents, the costs of which are roughly about the same as the cost of a home. Because their rent costs are a cycle, at the end of their monthly bills, these people do not have enough funds saved to be able to afford a down payment.
These people may be able to borrow money on loan programs where little or no down payment is required. But to do so, they would have to provide a private mortgage insurance or PMI. If you want to avoid PMI, you can take an 80 20 mortgage loan.
With an 80 20 mortgage loan, you get a “piggyback loan” or second mortgage loan that is used to back up the first mortgage. The first mortgage is comprised of 80 percent of the home’s price. The second loan is only for 20 percent minus the down payment.
80 20 Mortgage Loans – Second Mortgage spells higher rates
In most cases, the interest rate of the second loan of an 80 20 mortgage loan is higher that first. However, if you combine the two payments in an 80 20 mortgage loan, you get lower costs.
You can see evidence of this just by comparing the cost of an 80 20 mortgage loan with the cost of a regular loan with PMI. The 80 20 mortgage loan usually costs less each month.
80 20 mortgage loans are structured by lenders in several ways. Some lending companies structure their 80 20 mortgage loan with the first loan having a 5/1 ARM payment. This means that the 80 20 mortgage loan has a fixed rate for the first five years. However after the initial five years, the payment for the 80 20 mortgage loan interest rates is adjusted annually.
Others structure their 80 20 mortgage loans in a slight different way. 80 20 mortgage loans have the 20 percent piggyback dependent on the prime rate. The 80 percent of the 80 20 mortgage loan can be a fixed rate, adjustable, or interest-only.