80/20 loans are also described as combination financing or piggyback loans and offer a convenient way to provide creative financing in a purchase, refinance, home improvement, or debt consolidation transaction. In a purchase transaction, a second trust is frequently used in combination with a first trust to avoid paying Private Mortgage Insurance or PMI. The first trust is always set at 80% f your purchase price which eliminates the need for PMI. We add a second trust of 20% of the purchase price or value. I have had many clients close there 90/20 loan transaction with no cash by having the seller pay all of their closing costs. Several 80/20 loan programs will now allow loan amounts up to $750,000 and again, NO Mortgage Insurance!
You have a wide range of mortgage options on this 80/20 loan, including fixed rate or 80/20 loan Arms. Also, interest only 80/20 loan products are often available as well. Several advantages to consumers using this approach include:
However, there are some potential problems with the strategy.
Second Trust RatiosA second mortgage or second trust is a loan secured by your property which takes second position to the first mortgage. A second trust carries a fixed interest rate for the life of the loan and amortization periods range from 5 to 20 years with a great new product amortized over 30 years with a balloon due in 15 years. The longer amortization period lowers your monthly payment significantly. Generally, your total debt ratio should not exceed 45% of your monthly pretax income. Depending on credit scores, an interest only 80/20 loan HELOC may also be available to you as well
Several of our lenders are now offering interest only options which can often lower your payment or allow you to purchase more house. I have a rather extensive section detailing these new Interest only loan options.
I have included a page on how to calculate your 80/20 loan qualification ratios.
We offer you the ability to qualify and close into several unique programs which accommodate borrowers with non traditional income or asset situations. Please visit my No Docs page for additional information on a No Documentation Second Trust.
Read more about 80/20 Loan Closing Costs
I have an article "Buying your home in 2008" by email explaining negotiating strategy in today's market.
As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.
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