As we all know it is required by all lenders that the borrower puts a down payment on their home. Many mortgage lenders will require their borrowers to put a large amount down, usually twenty percent of the asking price of the home they are planning to purchase.
Our economy has gone into a huge mortgage crisis due to the decline in home values and the dreadful subprime mortgages that have caused so many to default on their payments. So because of this lenders are much more strict when it comes down to the twenty percent guideline for a down payment. When the housing market was at its peak many borrowers qualified for an 80/20 mortgage.
This type of 80/20 mortgage is really two mortgages and not only one. Mortgages of this nature were also commonly referred to as piggyback or 100% financing loans. The two loans will be very different in size, with the first loan as eighty percent of the borrowed funds for the home and the other loan is actually twenty percent which typically was the down payment.
These two loans can possibly be offered from two separate mortgage lenders, which will cause the borrower to make payments to different servicers and also have to pay closing costs for the two separate loans.
Some borrowers choose this type of loan instead of requesting 100% financing from a single mortgage lender. By getting an eighty/twenty mortgage it will help borrowers to avoid paying the large payments for private mortgage insurance (PMI).
Private mortgage insurance can actually cost the borrower several hundred dollars per month along with their regular mortgage payment. If they take out a secondary loan of twenty percent it will most likely be much cheaper than financing hundred percent at once.
Due to our economic crisis foreclosure rates have skyrocketed across
America and because of this most lenders will no longer offer this option. The regulation for good credit is quite different then before and the lenders expectations are much higher. Now lenders will commonly offer loans plans known as 80/10/10. With this the borrower puts down at least ten percent of the balance, and takes out two mortgages that consist of 80 and 10 percent of the value of the property.
Many homeowners across the nation are now regretting the fact that they acquired two separate mortgages. It seems that is much more difficult to maintain to separate mortgages and keep them current. Even though your second loan is much less than the first, there is still a possibility of foreclosure if you default on the loan.