San Francisco | Avoiding A Downpayment With 80/20 Mortgages |Mortgage residential and commercial home loans SF
Getting together enough money for a downpayment can be rather difficult for many people these days. It often takes many years to be able to get enough. Now, though, there is a way that you can get the finances for your home even without a downpayment of any kind. Here are some tips and information about 80/20 mortgages.
The main reason, in the past, for requiring this size of a downpayment was to avoid the need for Private Mortgage Insurance. This insurance is required if you get a mortgage for more than 80% of the value of the home. It can add a couple of thousand dollars to your annual price (and tens of thousands of dollars over the life of the mortgage) – depending on the size of the house. Since most people don’t wish to pay it, or are unable to pay it, it only made sense to wait until you had the downpayment in hand before they ever bought a house.
Now, however, many lenders have come up with a new arrangement to help people buy a home that could never otherwise come up with a downpayment of this size. It is called an 80/20 mortgage. There are also mortgages available that use similar numbers, such as a 75/25 mortgage – but the idea is the same – to make the downpayment unnecessary.
This type of financing is commonly referred to as a “piggyback” loan, and it enables you to get financing up to 100% of the value of the house. There are actually two mortgages that you are getting with an 80/20 mortgage – one for 80% and the other for 20%. If you have some money for a downpayment then similar arrangements can be made, and it will mean a smaller mortgage on your part. The larger downpayment that you put on the table, the better off you will be.
There are a couple of options that you may have with your second mortgage – the one for the 20%. While the first mortgage is usually fixed rate, the second mortgage is often a home equity line of credit (HELOC), which usually will be an adjustable rate mortgage, and it is often a balloon mortgage – payable in 15 years. Refinancing, of course, is usually what most people do when it becomes time to pay up.
When you get an 80/20 mortgage, you typically will be required to come up with the closing costs. This means you will still need to come up with about $3,000 to $6,000 for that event. Plus, don’t forget about any other expenses you may have after you move in. This makes it necessary, in most cases, to make sure that the house is in excellent condition when you move in, and should require very little work. It is also possible to work out a deal with the seller and see if they might absorb the cost of closing.
As with any mortgage, be sure to shop around for that perfect deal. Get several quotes online and compare them carefully – it could mean the difference in thousands of dollars over the lifetime of the 80/20 mortgage. Look into your credit rating before you look around, and get it in good shape for an even better interest rate.
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