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80-10-10 Loans Many borrowers use an 80-10-10 type of loan to avoid paying private mortgage insurance. The borrower contributes 10 percent to the down payment, borrows 80 percent in the first mortgage, and obtains a second loan for the remaining 10 percent. The lender sees a 20% down payment and does not require the additional cost of private mortgage insurance. In the event that you do not have the 20 percent down payment, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans; however, borrowers are usually required to carry Private Mortgage Insurance which will require an initial premium payment of 1.0% to 5.0 % of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10% down payment, this would mean either an initial premium payment of $2,025 to $3,375 or an initial premium of $675 to $1,130 + an additional monthly payment of $25 to $30. One scenario has a higher one time payment the other has lower up-front costs but has an additional monthly payment. Here is one way to accumulate the 20% down payment. The 80-10-10 loan is a program that has been around for a while. An 80% first mortgage + a 10% seller carryback + 10% down payment by you. Another scenario would be an 80% first mortgage + a 10% second mortgage + a 10% down payment. The 10% down payment can be entirely a gift to the buyer in some cases. In these cases since there is no mortgage insurance required, the buyer saves the monthly premium. Another benefit is that the purchase-money second mortgage is usually tax deductible, while mortgage insurance is not. Always check with your tax advisor before making any financial decisions. A newer version of this type of loan is an 80-15-5. 80% first mortgage
+ a 15% second mortgage + a 5% down payment. There are different
combinations of loan types available. One example would be a 30-year
fixed rate or a 5/1 adjustable rate for the first mortgage combined
with a 20-year fixed rate or a 30-year due in 15 years for the second
mortgage. (Payment is due at the end of the 15th year.)
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