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Home Page > Finance > Is It Possible To Skip The Downpayment With A 80/20 Mortgage?

Is It Possible To Skip The Downpayment With A 80/20 Mortgage?

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Posted: Sep 02, 2010 |

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Getting together enough money for a downpayment can be rather difficult for many people these days. It often takes many years to be able to get enough. Now, though, there is a way that you can get the finances for your home even without a downpayment of any kind. Here are some tips and information about 80/20 mortgages.

The main reason, in the past, for requiring this size of a downpayment was to avoid the need for Private Mortgage Insurance. This insurance is required if you get a mortgage for more than  80% of the value of the home. It can add a couple of thousand dollars to your annual price (and tens of thousands of dollars over the life of the mortgage) – depending on the size of the house. Since most people don’t wish to pay it, or are unable to pay it, it only made sense to wait until you had the downpayment in hand before they ever bought a house.

Now, however, many lenders have come up with a new arrangement to help people buy a home that could never otherwise come up with a downpayment of this size. It is called an 80/20 mortgage. There are also mortgages available that use similar numbers, such as a 75/25 mortgage – but the idea is the same – to make the downpayment unnecessary.

This type of financing is commonly referred to as a “piggyback” loan, and it enables you to get financing up to 100% of the value of the house. There are actually two mortgages that you are getting with an 80/20 mortgage – one for 80% and the other for 20%. If you have some money for a downpayment then similar arrangements can be made, and it will mean a smaller mortgage on your part. The larger downpayment that you put on the table, the better off you will be.

There are a couple of options that you may have with your second mortgage – the one for the 20%. While the first mortgage is usually fixed rate, the second mortgage is often a home equity line of credit (HELOC), which usually will be an adjustable rate mortgage, and it is often a balloon mortgage – payable in 15 years. Refinancing, of course, is usually what most people do when it becomes time to pay up.

When you get an 80/20 mortgage, you typically will be required to come up with the closing costs. This means you will still need to come up with about $3,000 to $6,000 for that event. Plus, don’t forget about any other expenses you may have after you move in. This makes it necessary, in most cases, to make sure that the house is in excellent condition when you move in, and should require very little work. It is also possible to work out a deal with the seller and see if they might absorb the cost of closing.

As with any mortgage, be sure to shop around for that perfect deal. Get several quotes online and compare them carefully – it could mean the difference in thousands of dollars over the lifetime of the 80/20 mortgage. Look into your credit rating before you look around, and get it in good shape for an even better interest rate.

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I am in the process of lising my home and a foreclosure my loan has been closed for 5 years. the interest rate on my loan is very high. is it possible for the bank to cosidr giving me a new mortgage

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Now you must be thinking how different it is from other loans? Well, reverse mortgage loan is a special kind of a loan that is available to equity-rich seniors. In this kind of service, repayment is not necessary until the borrower sells the property or moves to some other place or retirement home. You can say that it is a tax-free loan for homeowners whose mortgage has already been paid, well in advance but want to use the equity in their homes. If one has to follow the real definition, then it would be that a lender makes periodic payments to the borrower using his or her equity in the home as a security.

However, be ware and aware while choosing reverse mortgage loan as there are plenty of players that are offering loans to the needy in the market. A reverse mortgage is available in single-purpose, federally, and proprietary insured as well as covers the benefits and drawbacks of each. Thus, you have to consider many things when applying for this loan, such as how will it improve my life style, or how can I evaluate the property carefully in order to make an informed, wise decision to obtain it. Well, keep your worries aside as many financial institutions offer counseling sessions on the credit involved. The borrower receives the loan in a form of lump sum, line of credit and fixed monthly payment. To be eligible for reverse mortgage loan, you have to be an owner of a house and should be more than 62 years old. In fact, the benefits involved in it are that you do not have to pay the amount at one time or even in a form of monthly installments. Moreover, for procuring reverse mortgage loan you do not even have to go through a hassle of filling up formalities like income proof or a receipt.

However, a reverse mortgage loan is due upon three circumstances, such as the death of the borrower or the homeowner, in case the homeowner is hospitalized or after the home has been vacated for a consecutive one year. But if you think that that is all then you are here for another surprise in a form of special discounts and services on general insurance, health care, travel and entertainment services. Moreover, it is also involved in providing tax aide services and offers financial retirement plans to its clients. You can say that it all you wished for with that grin back on your face.

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1)Always be aware of what type of loan you will get into when refinancing. Many homeowners are looking to refinance right now due to low interest rates, but many people are getting into adjusted rate mortgages. Sometimes an adjusted rate mortgage makes sense, but if you plan on living in your home for a long time, a fixed rate home loan is probably best. The stability of a fixed rate mortgage will be worth it in the long run as interest rates will most likely not get any lower than they are right now.

2)Make sure you shop around to competing mortgage lenders and banks to ensure you get the best deal and interest rates possible. Ask for a written quote as to what you are able to qualify for and shop that around. This written quote will often be valid for a few business days and shows other lenders and banks you are serious and prepared to refinance a mortgage. With interest rates as low as they are, many lenders and banks have different offers that will be available to you with interest rates that vary.

3)Always understand that a cash out mortgage refinance needs to be paid back. While a cash out refinance is a good way to get a large amount of low interest money, it also can put your home and financial stability at risk. Make sure you fully understand the risks, and rewards, of cash back mortgage refinancing before you agree to anything or risk your home.

4)After you refinance into a better, and cheaper mortgage make sure you put the saved money towards your other debts and expenses. This will increase your credit rating and help your overall financial situation in the future. This money can even be used to make bigger monthly home loan payments which will save you even more money in the long run.

Refinancing a home or condo is not that difficult and can save a homeowner hundreds of dollars per month. Mortgage interest rates are near all time lows right now and millions of homeowners will save a lot of money by refinancing. Homeowners should take action now and refinance into a better, more affordable, monthly mortgage before the interest rates go up.

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Admittedly, banks are very strict about refinancing bad credit mortgage, no thanks to the global recession. It may be more difficult to refinance mortgages in general than if the economy is on roll.

There is good news, however, as it is still possible to refinance your mortgage even if you have a spotty credit history. You just have to accept the fact of home loan life that the lower your credit score, the higher your mortgage payments get. That’s the bad news of refinancing on a bad credit mortgage.

Still, take heart for indeed refinancing on a bad credit is difficult, yes, but not entirely impossible.

Things to Consider

Approval for your refinancing on poor credit depends largely on your credit score. Plus, take note that you often will not be able to secure a lower rate than your original interest rate because of your poor score so much so that the lower your credit score, the higher your new interest rates will be.

Also, the reasons behind your poor credit score will determine approval for your bad credit mortgage. On one hand, if it is due to missed amortization payments by 30 days or more, don’t expect to have your approval since you will be seen as a high risk indeed on your prospective new mortgage contract. On the other hand, if it is due to high credit card debt and utility debts, then you might just get that contract although do expect to pay higher rates on it.

Also, if you believe that your ARM will result to higher monthly payments or rates, then go ahead and refinance. This also goes for option-ARM or interest-only options in your old contract that will be reset – refinance now or else face significantly higher payments.

Tips on Refinancing

To make refinancing on a bad credit mortgage easier and faster, you have to adopt the following tips with guidance from either a mortgage banker or a mortgage broker or both.

First, you have to obtain your updated credit report from any of the three credit reporting agencies – Experian, TransUnion and Equifax. Although you can often get it for free via their websites, be prepared to pay a small fee after a certain number of inquiries as well as to secure your actual credit score.

Second, you have to consider the ways with which to improve your credit score within the next few months to a year. Your mortgage banker or mortgage broker should be able to help you on this point. A good point to start is to correct the errors and update the information reflected on your credit report, which is possible when you write to the concerned credit reporting agency about your request together with proofs of your claims. This way, you have better chances of securing approval for your bad credit mortgage.

Third, you have to shop around. This is true for any type of mortgage since not shopping around means that you are missing out on the best deals possible. Your mortgage broker can perform this job for you as well as provide advice on which type of mortgage is the most favorable under the circumstances.

Indeed, bad credit mortgage is highly possible. You just need to know when and where to start with the assistance of a mortgage broker.

Allegro Mortgages Corp. – Best Broker for All Your Financing Requirements (416) 987-0008

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