If you have only 10% downpayment and still wish to eliminate private mortgage insurance (PMI), we have the right solution for you – 80/10/10 loan (also called Piggyback loans). Yes, it’s back and this post will give you all the details you need to know.
How does a 80/10/10 loan work?
Usually a 2nd mortgage or a Home Equity Line of Credit (HELOC) is offered up to 90% of the home value. Such kind of loans are popularly known as 80/10/10 loans, where the first mortgage is 80 percent of the home value, second mortgage or HELOC is 10 percent and the rest 10 percent is the down payment by the borrower.
Show Me The Numbers:
Example #1 – Using 80/10/10 loan to avoid PMI
Say you are buying a house worth $650,000 and you only have 10% downpayment i.e. $65,000. You need a loan amount of $585,000. You can get one loan of 90% and pay mortgage insurance on it. Or you can get two loans – 1st mortgage for 80% i.e. $520,000 and a 2nd mortgage (HELOC) for 10% i.e. $65,000. You dont pay mortgage insurance on either the 1st or the 2nd mortgage.
Example #2 – Using 80/10/10 loan to qualify for a higher loan amount
Say you wanted to buy a $850,000 house and had only 10% downpayment. You wont qualify for any loan since Jumbo loans (loan amounts higher than conforming limits) require a minimum of 20% downpayment. So if your property is in a high cost area and conforming limit is $625,500 – with a 10% down your maximum loan amount can’t exceed $625,500. But with a 80/10/10 loan you can buy a $850,000 house by putting down only 10%.
Example #3 – Using 80/10/10 loan to avoid paying jumbo mortgage rates
Say you are buying a $900,000 house and have 20% downpayment. You can get one loan of $720,000. But you dont want to exceed the conforming limit and dont want to pay the higher interest rate of a Jumbo loan. In this example, you can get a $625,500 loan on the 1st (assuming that is the loan limit in your county) and can get a HELOC for $94,500. You are still paying 20% down, so technically its not a 80/10/10 loan. But using a HELOC on the 2nd and splitting the loan into two, you can avoid paying higher interest rate for a Jumbo loan.
How can I qualify for a 80/10/10 loan?
We offer this loan program for both home purchase and refinance. Property must be owner occupied. A minimum credit score of 720 is required for California (CA) borrowers and 700 for Washington (WA) and Oregon (OR) borrowers. Some of the additional guidelines for the HELOC is mentioned below:
- Maximum loan amount of $350,000 (This is the maximum ONLY for the HELOC and NOT the 1st mortgage + 2nd mortgage loan amount)
- No foreclosure or bankruptcy in the past 10 years
- $50.00 annual maintenance fees
- Early termination fee of $475 if the line is closed within 3 years
- First 10 years draw period, next 20 years repayment period
Mortgage Broker/Banker | San Jose, CA
(408) 615-0655 | Shashank@ArcusLending.com
Ranked among Top 150 Loan Officers and Top 40 under 40 Most Influential Mortgage Professionals in the Country