What is the 80-10-10 money rule?

Quick Peek:

Looking to avoid private mortgage insurance (PMI) and make a smaller down payment? An 80-10-10 mortgage may be the solution for you. This loan involves taking out two mortgages simultaneously, with the first mortgage being 80% of the home’s cost and the second mortgage being 10%. While there are benefits to this type of mortgage, such as avoiding PMI, there are also drawbacks to consider, such as higher interest rates on the second mortgage and having to keep track of two separate monthly payments.

An Introduction to the 80-10-10 Mortgage

When it comes to purchasing a home, most people will need to obtain a mortgage. However, not all mortgages are created equal, and it can be overwhelming to try and understand the different types available. One type of mortgage that has gained popularity in recent years is the 80-10-10 mortgage. This type of loan involves taking out two mortgages simultaneously, with the first mortgage being 80% of the home’s cost and the second mortgage being 10%. In this article, we will explore the ins and outs of the 80-10-10 mortgage and what it means for homebuyers.

What is an 80-10-10 Mortgage?

An 80-10-10 mortgage is a loan where first and second mortgages are obtained simultaneously. The first mortgage lien is taken with an 80% loan-to-value (LTV) ratio, meaning that it is 80% of the home’s cost. The second mortgage lien is taken with a 10% LTV ratio, and the remaining 10% is paid as a down payment. This type of mortgage is often used to avoid paying private mortgage insurance (PMI), which is required for mortgages with an LTV ratio of more than 80%.

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The Benefits of an 80-10-10 Mortgage

There are several benefits to obtaining an 80-10-10 mortgage. First and foremost, it allows homebuyers to avoid paying PMI, which can add a significant amount to their monthly mortgage payments. Additionally, it can make it easier for homebuyers to qualify for a mortgage, as they only need to come up with a 10% down payment instead of the traditional 20%. This can be especially beneficial for first-time homebuyers who may not have a lot of savings.

The Drawbacks of an 80-10-10 Mortgage

While there are certainly benefits to obtaining an 80-10-10 mortgage, there are also some drawbacks to consider. For one, it can be more complicated to obtain this type of mortgage, as it involves taking out two loans instead of one. Additionally, the interest rates on the second mortgage may be higher than on the first mortgage, which can result in higher overall monthly payments. Finally, it’s important to remember that taking out two mortgages means having two separate monthly payments to keep track of.

Is an 80-10-10 Mortgage Right for You?

Whether or not an 80-10-10 mortgage is right for you will depend on your individual financial situation and goals. If you’re looking to avoid paying PMI and have a smaller down payment, this type of mortgage may be a good option. However, if you’re not comfortable taking on two separate mortgages or if the interest rates on the second mortgage are prohibitively high, it may not be the best choice for you. As with any financial decision, it’s important to do your research and speak with a qualified professional before making a final decision.

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In Conclusion

Overall, an 80-10-10 mortgage can be a useful tool for homebuyers looking to avoid paying PMI and make a smaller down payment. However, it’s important to carefully consider the drawbacks and speak with a professional before making a final decision. By doing your due diligence and understanding the ins and outs of this type of mortgage, you can make an informed decision that’s right for your unique financial situation.