The 80-20 Mortgage Loan

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Just this Monday, the guidelines to the First Time Home Buyers Mortgage Assistance Program were changed by the Barstow Redevelopment Agency. It now includes a federal loan program allowing low-income buyers to purchase foreclosed homes. The new guidelines also allow them to remodel, repair or replace existing roofs, air conditioning systems, plumbing and electrical systems, heating systems, and flooring. This program may be a very good option for those who want to buy new homes. Actually, low to moderate income first time buyers looking into this mortgage program are now increasing, though they need to have a single loan to be able to move into their new house. This program may attract those who lack finances yet needs to urgently buy new homes, but they can look into another type of loan program which may help them purchase a home with no down payments at all.

This article focuses on the 80-20 mortgage loan, a home financing option that allows you to purchase a property without a down payment. You may encounter this as other terms like 100 percent financing, 80-20-0 mortgage loan, tandem loan, or piggy bank loan. Actually, 80-20 is one of the types of piggybank loan, but for this article, we would simply interchange them. What is an 80-20 mortgage loan and how does it work? It simply combines two mortgages without a down payment: first mortgage at 80% of the actual purchase price, a second mortgage at 20% of the sales price, and a zero down payment, thus the name 80-20-0. The loans come from two different mortgage lenders. Usually, the smaller mortgage, which in this case is 20%, has a greater interest rate. Through this loan program, a buyer can avoid paying a private mortgage insurance (PMI) for securing a single 100% loan.

If you analyze it carefully, you can take note of several pros and cons related to this mortgage loan. That's why home buyers need to look into this, and see if they are amenable to it. One advantage, as mentioned above, is that paying mortgage insurance is put aside, since a mortgage insurance is only usually required when you have a loan for more than 80% of the purchase price. This is especially advantageous for those who do not have funds for down payment, and for first time buyers. In addition, you may find that there are overlapping closing costs for the two mortgages, thus you are only charged once for these transactions. However, in this type of loan, there is a higher cost in the total interest than in standard loans. This is due to the risk amounts that each lender is assuming. Plus, many of these loans have balloon payments or fixed rate payments. This means that they give a 30 year amortization period, which is actually due for only 15 years.

Now there are several things which a buyer can do in order to evaluate the mortgage program that he can handle. First, consider the amount of money you have for your down payment. Talk with your lender so that you fully understand your budget before looking for a new home. Next, do the math. Calculate how much expenses you are likely going to spend, like earnest money, insurance for the mortgage, and closing costs. Several piggybank loan calculators are found online which may help you. You simply have to enter the sales price, select the value for your loans, select the terms of mortgage, then the calculation for your piggybank mortgage summary. By doing this, a buyer can compare which loan program is right for him. I hope these mortgage refinancing tips can help you out on your quest to financial freedom.