What is the 80-10-10 money rule?

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By Nick

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Looking to buy a home without paying Private Mortgage Insurance (PMI)? An 80-10-10 mortgage may be the answer. This loan allows you to take out two mortgages at once, with the first covering 80% of the home’s cost and the second covering 10%. By avoiding PMI, you can save money on interest payments over time and qualify for a larger loan amount. However, keep in mind that this option may come with higher interest rates, a larger down payment, and more complexity than a traditional mortgage. Consider your financial situation and goals before making a decision.

An 80-10-10 Mortgage: A Smart Way to Finance Your Home Purchase

If you’re planning to buy a home, you’re probably thinking about financing options. One popular option is an 80-10-10 mortgage, which involves taking out two mortgages at the same time. Here’s how it works.

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 is taken with a 10% LTV ratio, and the remaining 10% is paid as a down payment.

Why Choose an 80-10-10 Mortgage?

There are several reasons why an 80-10-10 mortgage might be a good choice for you. First, it allows you to avoid paying private mortgage insurance (PMI), which is required for most loans with a down payment of less than 20%. Second, it can help you qualify for a larger loan amount, since you’re borrowing less on the first mortgage. Third, it can help you save money on interest payments over time, since the second mortgage usually has a shorter term and a lower interest rate.

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How to Qualify for an 80-10-10 Mortgage?

To qualify for an 80-10-10 mortgage, you’ll need to have a good credit score and a stable income. You’ll also need to have enough cash on hand to cover the down payment and closing costs. Keep in mind that the interest rates on both mortgages may be higher than for a traditional mortgage, so it’s important to shop around and compare rates.

Pros and Cons of an 80-10-10 Mortgage

Like any financial product, an 80-10-10 mortgage has its pros and cons. Here are some to consider:

  1. Pros:
    • Allows you to avoid paying PMI
    • Can help you qualify for a larger loan amount
    • May save you money on interest payments over time
  2. Cons:
    • May have higher interest rates than traditional mortgages
    • Requires a larger down payment
    • May be more complex than a traditional mortgage

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

Whether an 80-10-10 mortgage is right for you depends on your individual financial situation and goals. If you have a good credit score, stable income, and enough cash on hand for a down payment, it may be a smart way to finance your home purchase. However, if you’re not comfortable with the higher interest rates or the complexity of the loan structure, a traditional mortgage may be a better choice.

In conclusion, an 80-10-10 mortgage is a loan where first and second mortgages are obtained simultaneously. It can help you avoid paying PMI, qualify for a larger loan amount, and save you money on interest payments over time. However, it may have higher interest rates, require a larger down payment, and be more complex than a traditional mortgage. Whether it’s right for you depends on your individual financial situation and goals.

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