A house is an essential investment since it offers security not only from the harsh outside elements but also from financial setback. For instance, it makes good collateral. It is also a strong basis for having a good credit score and it helps you to remain financially secure despite the recession. However, getting a home and paying its monthly mortgages are two different things. Mortgages can drain your monthly budget, making the rest of your bills of secondary importance. Fortunately, if you plan to buy a home anytime soon, you have numerous options when it comes to financing your home. One of these options is the 80 10 10 mortgage.
What is the definition of an 80 10 10 mortgage?
It is basically a piggyback arrangement wherein you, as the homeowner, are required to pay 10% as down payment. 80% of your home’s financing needs will be on one loan while the remaining 10% will be on another loan. It may be a bit confusing if put this way but the essence is that the 80% is really the mortgage while the other 10% that is borrowed only allows you to put a total of 20% down payment to save on the mortgage, and possibly the interest.
What are the advantages of the 80 10 10 mortgage?
One of the primary advantages of the 80 10 10 mortgage is that it makes it easier for you to purchase a home. Saving that 10% down payment is easier than getting the 20% down. This is very advantageous especially if your target residence is in a community where the demand for residential lots is greater than what is actually available.
Another known benefit to this program is that it allows you to finance 90% of your mortgage without having to deal with any private mortgage insurance; and for most, that’s actually a sought-after break from more financial obligations. Private mortgage insurance can be quite expensive and in some cases, it may not even be tax deductible.
But even if you’ve had a history of previous home sales and you managed to save some money from those transactions, the 80 10 10 mortgage can still be a good option. This is because instead of putting all the proceeds from previous transactions into the down payment of the home, you can use part of it to buy furniture or pay off other debt.
How do you enter into this financial transaction?
1. Look for local lenders with competitive rates and agreeable terms. If you can’t find one locally, try to expand your search online. You are in luck if you are in Texas as there are numerous companies offering reasonable rates in the region.
2. Gather your pertinent documents including your pay stubs, copy of taxes, and bank statements, and other financial reports. Oftentimes, your lender will tell you the list of requirements on your initial meeting; and if you’re interested, you can also ask for a calculation of how much interest you will be paying using a mortgage calculator.
3. Compare the terms of the 80 10 10 mortgage you are looking at, especially the length of the loans from different lenders. Ideally one that has the shortest terms will demand the highest interest rates. Another fact that you have to look out for in a good offer is whether there are no early repayment penalties.
In most cases, you might be pre-approved for a loan amount that you can already use to form that 20% down payment. But the full amount of the 80 10 10 mortgage will only be given you if you’ve already found your dream home and are ready to make a purchase.
