No Money Down Mortgages: 80 20 Mortgages Avoid Private Mortgage Insurance
If you have been putting off your home purchase because you lack the necessary down payment, there are mortgage options available that can help you. In the past homebuyers without the necessary down payment were required to purchase expensive Private Mortgage Insurance. There are now mortgage options that can get you approved without this costly insurance; this type of mortgage is called an 80/20 mortgage loan.
An 80/20 mortgage is two mortgages that cover 100% of your homes purchase price. Your first mortgage will cover 80% of the purchase price and a second loan, often from a second lender covers the remaining 20%. Structuring your mortgage loan in this manner will prevent your primary lender from requiring Private Mortgage Insurance.
If you are a homeowner with poor credit, this type of mortgage could help you qualify for a better interest rate. Having the necessary down payment will allow you to qualify for an interest rate as much as 2-3% less than if you had financed the loan outright with one mortgage. When you finance 100% of the purchase price with two mortgages, you can expect the interest rate on the second loan to be slightly higher than the interest rate on the primary mortgage. There reason for this is because the second lender assumes more risk than the primary mortgage lender; this risk is passed on to the borrower in the form of a higher interest rate.
Remember that you will typically have two monthly payments when using an 80/20 mortgage; it is important to budget accordingly because if you fall behind on either loan the lenders can take your home. If you are considering an 80/20 mortgage for your home it is important to shop around for the most competitive interest rates on both mortgages. You can learn more about your mortgage options, including common mistakes to avoid by registering for a free mortgage guidebook.
