Unlocking Homeownership: The 80/10/10 Loan Hack to Sidestep PMI

What is an 80/10/10 Loan?

An 80/10/10 loan is a home-financing strategy where you take out a primary mortgage for 80% of the home's price, a second mortgage for 10%, and make a down payment of the remaining 10%. This avoids the traditional requirement of PMI for buyers who can't afford a 20% down payment.

The Mechanics of the Loan:

The First Mortgage:80% of the home's purchase price is covered by a standard mortgage.

The Second Mortgage:Typically a home equity line of credit (HELOC) or a home equity loan, covering 10% of the home's price.

Your Down Payment:The remaining 10% of the home's price.

Benefits of the 80/10/10 Loan:

Avoid PMI:Since the primary loan is only 80% of the home value, PMI is not required.

Increased Buying Power:You can afford a home without saving the full 20% for a down payment.

Flexibility:This structure offers more flexibility in financing and can help in bidding wars.

Ideal Candidates for an 80/10/10 Loan:

Homebuyers with Good Credit:Lenders typically require a high credit score for both loans.

Those Seeking to Preserve Cash:If you want to maintain liquidity rather than tying up cash in your home.

Buyers in Competitive Markets:Where quick and appealing offers are necessary.

Things to Consider:

Two Loans to Manage:You'll have two separate loans with potentially different terms and interest rates.

Interest Rates:The second mortgage usually has a higher interest rate.

Qualification Criteria:Qualifying for two mortgages simultaneously can be stringent.

Conclusion:

The 80/10/10 loan can be a practical solution for many homebuyers, offering a path to homeownership without the hefty upfront costs. It's important to weigh the pros and cons, understand the responsibilities of managing two mortgages, and consult with a financial advisor to see if this loan structure aligns with your financial goals and capabilities.