If you’re in the market for a mortgage, something you may have heard of is the 80/10/10 loan, otherwise known as the piggyback loan. This loan is much harder to get since the mortgage crisis. However, if you have excellent credit, this may be an option for you. Is this mortgage for you though? Before you sign the paperwork, make sure you understand the 80/10/10 loan.
What Is the 80/10/10 Loan?
The 80/10/10 loan is known as the piggyback loan because one loan piggybacks the other. The buyer takes two loans, one that covers 80% and another that covers 10% of the mortgage. The buyer must then come up with the final 10% as a down payment. The purpose of the loan is to avoid paying private mortgage insurance.
How to Apply
Before you apply, you must check your credit report and make sure everything is in order. This means that your credit score is at least 720. You will also need a down payment of at least 10%. The bigger down payment you can come up with, the better chance you have of getting this loan. You will also need to make sure to find a home that qualifies for such a loan. In many cases, townhomes and single family homes are the only options. Some banks also require that you have at least 6 months worth of expenses in your bank account to qualify. The exact application process will depend on the bank you choose.
Pros and Cons
There are many pros and cons to this type of loan. First of all, an 80/10/10 loan requires immaculate credit. Another downside is that the interest rate on the second loan is usually higher than the interest rate on the first loan. This means that you may be better off paying the PMI. You must also consider the need to pay closing costs and fees on two loans. Homebuyers that choose this route may also lose out on some tax benefits. The good news is that you can buy a larger home with a smaller mortgage payment in addition to having a smaller down payment. You can also deduct interest on the second loan up to $100,000.
The 80/10/10 loan can certainly be a great way to get into your next home, and you can find even more about it on the Lending Expert Blog. With the ability to purchase a larger house for a smaller monthly payment, it can certainly be tempting. However, you need to be careful with this type of loan. Carrying two mortgages can be more difficult than you might think.