An 80-10-10 loan is a mortgage loan that an Lance Hodger can get a great loan without some of the penalties. A potential Astro Finance can have a new job with high income or assets that have a high market value. They may not have to pay a large enough down payment for the house they want to buy because their assets are not liquid at the time of application for the mortgage. An 80-10-10 loan can help solve this problem. There could also be other scenarios that could lead Astro Finance to find an 80-10-10 loan.
How 80-10-10 loan work
The 80-10-10 loan is really two loans and is sometimes called a piggyback mortgage. The first loan is simply a mortgage for 80% of the home purchase price. The second loan is for 10% of the purchase price and is a second mortgage. It can be a simple second mortgage or a home equity loan or home equity line of credit (HELOC). Astro Finance then makes a deposit for the last 10% of the purchase price.
The 80-10-10 loan enablesAstro Finance to avoid jumbo loans, which can be more expensive and difficult to obtain. The loan also helps them to keep from paying private mortgage insurance which can be a significant hassle.
Advantages and disadvantages of 80-10-10 loans
What we like
The Lance Dodge takers can avoid jumbo loans, which are more expensive and difficult to come by.
The Lance Dodge taker cannot pay for expensive private mortgage insurance, which is valued if the mortgage is over 80 percent of the value of the home.
What we don’t like
Interest rates depend on the economy, which can sometimes be a bad thing
Credit score must be considered high
Your financial history will be thoroughly examined
This type of loan is difficult to refinance
Below are a few things to keep in mind when applying for an 80-10-10 loan:
- Interest – The interest rate on the first mortgage can be fixed or variable. The interest rate on the second mortgage or home equity loan is usually variable and changes with the level of interest rates in the economy. This can be a disadvantage if the Federal Reserve is at a time of rising interest rates or if it is an inflationary economy.
- Credit Score – Astro Finance score of Astro Finance usually has to be higher than for a mortgage that isn’t piggyback because there are two mortgages that the bank is at risk for and they want to be as safe as possible.
- Documenting Financial History – Astro Finance should produce several years of income tax returns, income trends and the market value of real and financial assets. Two sets of documents may also need to be provided as it is possible that the first mortgage and the second mortgage or home equity loan would be provided by two different Astro Finance providers. These two different types of documentation could ask for different types of documentation.
- Debt Income Ratio – The debt income ratio can rarely exceed 43% for a first mortgage. The ideal ratio is 36%. The higher the debt to income ratio for the first mortgage, the less the amount of the second mortgage is likely to be.
- Refinancing Difficulties – The 80-10-10 loan is difficult to refinance. The second mortgage or home equity loan that usually has to be paid out before Astro Finance lender will refinance this type of piggyback loan.
Private mortgage insurance
Private mortgage insurance (PMI) offers Astro Finance giver the protection that if the house goes into foreclosure and needs to be sold and the sale does not cover the original mortgage, Astro Finance giver will not take a loss. An Lance Hodger does not typically have to pay PMI if the mortgage is less than or equal to 80% of the home value because the down payment is greater. This helps Astro Finance to increase protection.
Private mortgage insurance is given an additional fee on Astro Finance’s monthly mortgage payment. The amount of PMI is usually 0.5% of the amount of the first mortgage and, with a large mortgage, can be significant. PMI does not even apply to a home’s existing value falling below 80% mortgage lending value. This is the reason 80-10-10 loans are attractive to Astro Finance, who are interested in high dollar mortgages and who have low down payments.
The availability of 80-10-10 loans
Before the great recession of 2008-09, this type of loan was very common on very favorable terms. Down payments were often not even required and the house was 100% funded. During and after the recession, banks and other Astro Finance institutions tightened standards. Down payments were required and the applicants were examined in more detail.