The Zero Down 80/20 Mortgage
by Matthew Allen
This is an excellent loan for those that are
lacking the down payment required for other types of mortgages.
The 80 20 mortgage is simply two loans for 100% of the purchase price. It is a
first mortgage at 80% of the purchase price with a 20% second mortgage.
If you are a conforming borrower, doing your loan in this manner will save you
from having to pay mortgage insurance. Mortgage insurance is almost always
required when you have less than 20% down. But with the 80 20 loan you avoid
this necessary evil.
If you are a sub-prime borrower, doing you loan in this manner will typically
keep your interest rates ½% to 2.5% lower than doing a 100% one loan. A 100%
one loan is simply one loan for the entire purchase price.
Many times you will have two choices when it comes to the second mortgage
portion of the 80 20 mortgage. The second mortgage can either be a fixed second
mortgage or it can be a line of credit.
If it is a fixed second mortgage. The interest rate is fixed for the entire
length of the mortgage. Most fixed second mortgages are a 30 due in 15. Meaning
that the second mortgage is amortized over 30 years, but is due in 15 years.
Basically it is a balloon payment. Don’t let this scare you. Statistically
people refinance or sell their home every 7 to 9 years any ways.
If it is a line of credit as the second mortgage. The interest rate will
fluctuate as the Federal Reserve adjusts the prime interest rate up or down. The
benefit of going with the line of credit as the second mortgage is that the
interest rate is normally much lower than the fixed second mortgages rate. It
can be 2% to 5% lower.
If you are considering doing the 80 20 loan have your loan officer compare the
two different options if you have both available to you.
You may also want to consider an 80 20 interest only loan. The interest only
loan could save you hundreds of dollars in mortgage payments every month. This
can help you purchase a more expensive home or keep the payments down on the
home you want to buy
About The Author
Matthew Allen is a mortgage consultant with Action Brokerage Services, Inc. in
Medford Oregon. He is also the author of "How To Buy A Home With Zero Down,
Even If You Have Damaged Or No Credit" You can visit his website at http://www.realmortgageadvice.com.
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