When to opt for 80/20 mortgage and what are the options?

Hi Jonathan,

Welcome to MortgageFit forum.

An 80/20 mortgage loan gives you the option to get 100% financing for your property. It is a combination of two loans - the first, having a loan amount of 80% of the purchase price and the second includes the remaining 20% of the purchase price.

Usually the rate on the second mortgage is higher than first loan. The first mortgage can be fixed rate loan (15 year or 30 year), adjustable rate mortgage (5/1, 7/1, or 10/1 fixed period ARMs) or it may be an interest-only home loan. The 20 percent second mortgage can be a fixed rate home equity loan or home equity line of credit in which the rates vary with the prime rate.

Regards,
Caron.

Hi Jonathan

Here is some more information on 80/20 mortgage loan.

80/20 mortgages are suitable for those who do not have the cash to make their down payments. These are also applicable to those who do not prefer paying for private mortgage insurance premiums that protects a lender from financial loss when the borrower cannot pay off the entire loan. Since there are no down payment and insurance payments, therefore lenders prefer borrowers to have good credit history to qualify for these loans. These mortgages are also suitable when one needs to consolidate his debts.

Hope you have benefited from this information.

Please let us know your feedback.

Regards,
Jessica.

Please let me know the options in 80/20 mortgage?

Before opting for 80-20 loan, i want to have its advantage over other conventional loans.

Hi Soren,

Welcome to the MortgageFit Forums.

The basic advantages of 80-20 loans over the conventional loan are:

• No down payment is required if you are going for this kind of loan.
  
• When a first time home buyer opt for 80-20 mortgage loan then the monthly payment are often tax deductible. The home buyers can decide to pay off the second trust as soon as they can so as to reduce the total payment.
  
• For this type of loan, no mortgage insurance is required.
  
• Sub prime borrowers enjoys the benefit of low interest rates as sometimes lenders lowers the interest rates by 1/2% -2%.

Hi Jenny

Welcome to the MortgageFit Forum

Jenny Wrote:
"Please let me know the options in 80/20 mortgage?"

There are various options available for 80-20 mortgage loans. The first and the second mortgages in such a financing technique can have the following varieties.

For the first mortgage, you can avail any of the mortgages given below.

Fixed rate mortgage: It is a long term fixed rate mortgage that requires fixed monthly payments throughout the loan period. The loan term usually varies from 15 to 30 years.

Adjustable rate mortgage: These are mortgage loans in which the rates adjust after a regular period of interval. In most cases hybrid ARMs are available. These are adjustable rate mortgages having fixed rate for a certain period after which the rates keep on changing within a specified limit.

Interest-only mortgages: These are home loans require the interest to be paid for a certain period (5 to7years). No payment is made towards the principal during this period. After the initial period is over, you can refinance the existing loan, pay off the entire balance or start repaying the principal along with the interest on a monthly basis.

The options for the second mortgage are:

Fixed rate home equity loan: Here the interest rate is fixed throughout the life of the loan and the loan amount is based on your home equity. The loan amount is offered in a single payment and loan period varies from 15 to 20 years.

Home equity line of credit: With these loans, you can avail cash advances up to a certain loan limit whenever required. The initial interest rate is low but it varies with the prime rate. The monthly payments during the withdrawal period cover the interest only; but you have the option to pay the principal. During the repayment period, you can't withdraw a certain amount and must pay off the loan balance over the life of the loan. The draw period is for 5 to 10 years whereas the repayment period spans over 10 to 15 years.

We hope that this information will be useful to you.

Regards,
Caron.

When can you get an 80/20 loan? What does you credit score have to be.

Hi Guest,

Generally credit score of 680 is required for full doc loan and 700 is needed for stated income loans.

Thanks,

Sara

Hi Guest,

For the first mortgage, a credit score of 680 is required and for the second loan, a score of 620 is suitable.

We have already discussed in this thread on the topic, When 80/20 loan is suitable. Kindly refer to that post.

Thanks,

Caron.

can you have a co-signer on a 80/20 loan?
can you use two different lenders?

Hi,

Yes, it is possible that you can have a co-signer on a 80/20 loan and you can also use two different lenders.

Thanks,
Larry

It is much more likely you can have a co-signer on an 80/20 if they occupy the home. If they do not occupy the home then it's referred to as a non-occupant co-borrower on a conventional loan program, or simply just a co-signer on FHA. FHA only does 1st mortgages, however you may have a 2nd mortgage behind an FHA 1st mortgage. On conventional the occupant borrower usually must still qualify on their own, so the use of a co-signer isn't as helpful than using one on FHA. With FHA the co-signers income (and debts) are mixed in with the occupant borrowers and it qualifies that way.