These days, it can be hard for many people to save up enough money for a down payment. It usually takes a long time to get enough. Now, though, there is a way to get the money for your home even if you don't have any kind of down payment. Here are some things you should know about 80/20 mortgages and some tips.
In the past, this size of a down payment was needed to avoid having to pay for Private Mortgage Insurance. If you get a mortgage for more than 80% of the home's value, you have to get this insurance. Depending on the size of the house, it can add a few thousand dollars to your annual price and tens of thousands over the life of the mortgage. Since most people don't want to pay it or can't pay it, it made sense to wait to buy a house until they had enough money for a downpayment.
Now, though, many lenders have come up with a new way to help people buy a home who would never be able to come up with a downpayment of this size. It's known as a "80/20 mortgage." There are also mortgages with similar numbers, like a 75/25 mortgage, but the goal is still the same: to get rid of the need for a down payment.
This type of loan is often called a "piggyback" loan, and it lets you get financing for up to the full value of the house. When you get an 80/20 mortgage, you are actually getting two mortgages, one for 80% and the other for 20%. If you have money for a down payment, you can make similar plans, which will mean that your mortgage will be smaller. The more money you put down as a down payment, the better off you will be.
You may have a few options when it comes to your second mortgage, including the one for the 20 percent. The first mortgage usually has a fixed interest rate, but the second mortgage is often a home equity line of credit (HELOC), which has a variable interest rate and is usually due in 15 years. Refinancing is what most people do when it's time to pay up, of course.
When you get an 80/20 mortgage, you usually have to pay the closing costs yourself. This means that you will still need between $3,000 and $6,000 for that event. Also, don't forget about any other costs you might have after you move in. This means that, in most cases, you need to make sure the house is in great shape when you move in and shouldn't need much work. You could also try to make a deal with the seller and see if they would pay for the closing costs.
As with any loan, you should look around to find the best deal. Get several online quotes and carefully compare them. This could save you thousands of dollars over the life of your 80/20 mortgage. Before you look around, check your credit score and get it in good shape to get an even better interest rate.
