Mortgage Financing Information: The Eighty-Twenty Mortgage Loan
There are a wide variety of loans available today. More and more people, especially young professionals are in need of 100% financing for their new home.
A good loan for people who need 100% financing is the 80-20 mortgage loan. This requires the person to take out two loans, one for 80% of the price of the home and the other for 20%. The buyer needs to come up with the closing costs for each of the loan. Having an 80-20 mortgage loan allows people to get a home without a down payment. This is great for people who don't have the money for the down payment or would rather not touch their savings.
The majority of people who take an 80-20 mortgage loan are young professionals. These are people who have gotten out of college and have a good job, but don't have the savings necessary to purchase a home. These people also have good credit.
A lot of people who rent also choose to take an 80-20 mortgage loan. Many times renters can easily pay a large amount for a place to live, but at the end of the month they don't have anything left to save for a home. They show that they can make payments and have the ability to pay, but they just don't have any savings.
The idea of the 80-20 mortgage loan is that the second mortgage loan is used to back up the first. Quite often the interest rate on the second loan is much higher than the first. However, you can combine the two payments which will help to lower your costs. If you take out an 80-20 mortgage loan then you don't need private mortgage insurance or PMI. An 80/20 mortgage loan usually costs less per month than a regular loan that requires PMI.
80-20 mortgage loans come structured in many different ways by various lenders. One popular choice is where the lending company will have the first mortgage loan with a 5/1 ARM payment. This means that the 80-20 loan has a fixed fate for the first five years. Then after the first five years the monthly payments for the 80-20 mortgage loan will adjust annually to the interest rates in the market. Other companies will structure the interest rates of the two loans differently. They will have the 20% mortgage loan structured with the prime rate and have the 80% mortgage loan on a fixed rate, adjustable rate or interest only.
If you are a young professional or you simply do not make enough money to save up for a down payment on a home, then the 80-20 mortgage loan is probably for you. You must have good credit and pre-qualify, but if you do you will be able to enjoy a beautiful home with no money down.