80-10-10 “Piggyback” Loans — Home.Loans

Finding the right home loan can be tricky for even the most experienced home buyer. There are simply so many things to take into consideration. Deciding on the type of interest rate, figuring out how much of a down payment you can afford, and even choosing the loan program are enough to make anyone’s head spin.

Then there is the matter of whether or not you even qualify to borrow the amount you need to purchase your home. And if you do, will you be stuck paying for private mortgage insurance? Some parts of the home buying process simply can’t be helped. But there is a solution to those last two issues.

The 80-10-10 loan, a form of combination loan, is the solution in question. An 80-10-10 loan is actually two separate loans used to cover the cost of a home purchase. The first loan covers 80% of the purchase price. The second loan covers another 10% of the price. The remaining 10% is to be paid by the borrower as a down payment.

80-10-10 Loan Basics

Born from the combination loans of days past, the 80-10-10 is the modern equivalent of a mortgage structure introduced to help homebuyers purchase a home with no money down. The original product still involved two separate loans, however the second loan was meant to cover the remaining 20% left over after the primary loan covered 80%. These 80-20 loans involved a primary mortgage, and a HELOC to piggyback off of it.

It wasn’t until the revered housing slumps that the structure had to be updated. Lenders realized that no money down housing lead to many homeowners walking away from their homes in times of financial crisis. This lead to the modern 80-10-10 loan we have today, where borrowers are expected to make a 10% down payment as part of the transaction.

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80-10-10 loans are mainly popular among homeowners looking to avoid jumbo loans, circumvent private mortgage insurance (PMI), or in some cases, purchase a new home prior to selling their current home. These loans are often called piggyback loans, since they require two loans, one to take the brunt of the home value, and a second smaller loan that handles a smaller portion, thus “piggybacking” off of the first loan. There are many variations to this structure, including a 75-15-10 loan and many more.

Not too long ago, 80-10-10 loans were quite hard to get, since lenders rarely wanted to waste time financing 10% of anything, including homes. Now, however, combination loans have risen in popularity, and more lenders are willing to push forward with the double home loan. Some lenders even partner with other lenders or banks, each servicing one of the two loans.

Uses for an 80-10-10 Loan

It is easy to believe that two loans in place of one is just some money grabbing scheme to trick home buyers into paying more interest. While scams of that nature do exist, the 80-10-10 loan isn’t one of them. That’s not to say that each loan doesn’t have interest to contend with, but the uses for the 80-10-10 structure are what make it so appealing.

Eliminating Mortgage Insurance

Let’s face it. No homeowner is thrilled with the idea of mortgage insurance. Anything that raises a monthly mortgage payment any more than it should be is just plain evil, right? So needless to say, anything that can be done to rid a home buyer of the burden of mortgage insurance is nothing short of a miracle.

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Quite miraculously, that is exactly what an 80-10-10 loan can do. You see, most conventional loans require mortgage insurance if the preferred down payment of 20% isn’t met. With the 80-10-10 loan, it just so happens that that second loan for 10% of the purchase price brings your total contribution towards the home to a whopping 90%!

And just like that, PMI is a thing of the past.

Circumventing a Jumbo Mortgage

The more clever home buyers found out an even more interesting use for the 80-10-10 loan. For the more expensive home purchases, non-conforming Jumbo loans are typically the way to go. Jumbo loans, for those who aren’t in the know, allow home buyers to take out much larger mortgages — well above the conforming loan limits set by Fannie Mae and Freddie Mac.

The problem is that jumbo loan eligibility requirements are set by the lender and are virtually unregulated, leading it to be quite a tedious process to obtain one. That said, with jumbo loans in excess of $450,000, who could blame a lender for being cautious? Often times, jumbo loans require exorbitant down payments, pristine credit scores and proof of cash reserves that most conforming mortgages don’t even require.

That’s why many home buyers have turned to the 80-10-10 loan in an attempt to sidestep the hassles associated with jumbo home loans. For loan amounts over the conforming limits, breaking apart the loan amount between two loans not only makes it possible to get a more expensive home by conventional means, but it also lowers the down payment necessary. It’s a win-win!

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Benefits of an 80-10-10 Loan