For those of us who can remember back to the pre-crash days of the early 2000s, the term “80/20” or piggyback second mortgage was a very popular one, and a great loan option when financing a home. When the markets crashed c. 2008, these loan options became all but extinct. Well, they are back and they are more popular than ever!
80/20 refers to a loan option that offers borrowers the ability to finance 100% of the price of a home, or in the case of a refinance, 100% of the appraised value of a home. Essentially this is a creative way to avoid paying Private Mortgage Insurance (commonly referred to as PMI), but also not have to make a down payment in a purchase, or utilize the full equity of a home you already own. Lenders do this by offering one mortgage for 80% of the price/value of a home and another loan for the remaining 20%. In a purchase, you are essentially financing your 20% down payment that alleviates the need for PMI.
This is great for a person who has excellent credit, a steady job that can sustain the mortgage payments, but not a lot of cash in the bank to put into the purchase.
This option is favorable over a PMI loan in that you are potentially increasing your deduction for mortgage interest on your taxes, and mainly because you are building equity at a faster pace as the 20% secondary loan is typically for a shorter term.
Feel free to reach out to any of our Loan Officers at Title Mortgage Solution to learn more about 80/20 loan options and see if this may be a good fit for you!