What is the 80-10-10 rule finance?

Quick Peek:

Looking to buy a home but don’t have a 20% down payment? Consider an 80-10-10 loan, which allows you to avoid private mortgage insurance (PMI). With this type of mortgage, you take out a primary loan for 80% of the purchase price, make a 10% down payment, and take out a second loan for the remaining 10%. This can save you money and potentially help you afford a larger home. However, it’s important to carefully evaluate your financial situation before deciding if this type of loan is right for you.

What is the 80-10-10 Rule in Finance?

When it comes to buying a home, many people believe that a 20% down payment is required to avoid private mortgage insurance (PMI). However, not everyone has the means to come up with such a large sum of money. That’s where the 80-10-10 rule in finance comes in.

What is an 80-10-10 Loan?

An 80-10-10 loan is a type of mortgage that allows you to avoid PMI even if you don’t have a 20% down payment. With this type of loan, you take out a primary mortgage for 80% of the purchase price, make a 10% down payment, and take out a second mortgage for the remaining 10%.

This means that you’ll have two mortgages to pay off instead of one, but the overall cost can be lower than paying for PMI. Plus, you may be able to deduct the interest paid on both mortgages from your taxes.

The Benefits of an 80-10-10 Loan

The biggest benefit of an 80-10-10 loan is that it allows you to avoid PMI, which can be a significant cost over the life of your mortgage. PMI is typically required when you have less than a 20% down payment, and it can add hundreds of dollars to your monthly mortgage payment.

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In addition to saving money on PMI, an 80-10-10 loan can also help you qualify for a larger mortgage. By making a 10% down payment instead of a 20% down payment, you may be able to afford a more expensive home.

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

While an 80-10-10 loan can be a great option for some homebuyers, it’s not the right choice for everyone. Before deciding on this type of loan, it’s important to consider your financial situation and goals.

If you have the means to make a 20% down payment, it may be a better option to avoid taking on additional debt. However, if you don’t have the funds for a large down payment, an 80-10-10 loan can help you avoid PMI and afford a home that meets your needs.

In Conclusion

The 80-10-10 rule in finance can be a great option for homebuyers who want to avoid the cost of PMI but don’t have a 20% down payment. By taking out two mortgages instead of one, you can save money and potentially afford a larger home. However, it’s important to carefully consider your financial situation and goals before deciding if an 80-10-10 loan is right for you.