When applying for a mortgage loan, most of the time you have to pay a down payment. Many traditional mortgages only cover 80% of the price of a home. So, people who want to buy a home have to pay the extra 20%. In an ideal world, a 20% down payment would be the best. In reality, not many people can get their hands on this kind of money. Because of this, mortgage lenders offer 80/20 mortgage loans, also called "piggyback mortgage loans."
What's the deal with 80/20 home loans?
The idea behind 80/20 home loans is very easy to understand. Usually, if a homebuyer didn't have enough money for a 20% down payment, they would have to buy private mortgage insurance (PMI) in order to get the mortgage. On average, PMI adds $100 to a mortgage payment.
If you take out an 80/20 home loan, you don't have to pay PMI. Instead, people who want to buy a home get two loans to pay for it. A first mortgage can cover up to 80% of the cost of a home, while a second mortgage or home equity loan can cover the remaining 20%.
Who can get an 80/20 mortgage?
An 80/20 option could work for any buyer who wants to avoid paying for private mortgage insurance. People who are buying their first home can benefit the most from piggyback loans. These loans will also be helpful for young couples. Most of the time, these people have not been able to save up a lot of money. So, they won't have to wait to buy a house.
People who have bad credit can also get an 80/20 home loan. Different mortgage lenders have different rules about who can get a loan. Banks, credit unions, and mortgage companies that use traditional lending methods like to work with people who have good credit. So, they might not give loans to people whose credit scores are below 640.
On the other hand, many lenders offer a variety of mortgage loans for people with bad credit. These include loans that help with down payments, closing costs, getting a low mortgage rate, and other things.
Trying to get an 80/20 loan when you have bad credit
Mortgage brokers are very good at helping people with bad credit find a home loan programme that works for them. To make the process easier, brokers have websites that explain the different types of bad credit home loans. Also, you can get a quote for a mortgage online and get up to four different offers from lenders who offer piggyback loans to people with bad credit.
