QandAs: Loans

What is an 80/20 Mortgage?

Answer:
An 80/20 Mortgage is actually two separate loans.

The first mortgage is equal to 80% of the purchase price. The remaining 20% is covered by a second mortgage. This setup allows you to purchase a home with no money down.

You also avoid private mortgage insurance, which is normally required if your down payment is less than 20%. (Private Mortgage Insurance or PMI protects the lender from loss in case of default.)

An 80-20 Mortgage program usually piggy backs a Home Equity Line of Credit as the second mortgage. The only concern with a HELOC is the potential for your rate to raise. The increase in your payment isn't usually much as it is based on the total amount of the loan and since it's only 20% of the home purchase the amount doesn't fluctuate or act as a determining factor.

If you choose an 80/20 mortgage, keep in mind that you are borrowing 100% of the home’s value. It may take a couple of years to pay down the balances enough to give you any measurable equity in the property.


	more Q&A sessions like this
	What is a second mortgage? What is a Private Mortgage Insurance or PMI? What are the main parts of a Mortgage? What does HELOC stand for? What is a Home Equity Line of Credit or HELOC? How can I pay for a home improvement project? What Does Borrowing Against my Equity Mean? Can I consolidate my debt on a credit card? How soon after I buy a Home can I get a Home Equity Line of Credit? Can you convert a Home Equity Line of Credit into a Home Equity Loan? What is Mortgage Insurance? Where can I get cash for a remodeling project? What are the Benefits of Including my Homeowner’s Insurance Premium in my Monthly Mortgage Payment?