80/20 Mortgage

The 80/20 loan provides low-interest rate loans to qualifying consumers who wish to become a homeowner. It is a program set up through the Housing Finance Authority, and there are participating lenders in every state. For example, if a house is selling for $100,000, you only need to qualify for a mortgage for $80,000. This $80,000 represents the 80 percent and will be your first mortgage which you will make payments on. The $20,000 will become the second mortgage that has the zero percent APR.

Process

The 80/20 loan is unique in that the homebuyer only needs to qualify for the first 80 percent of a home's value for the mortgage. This amount is financed at 5.99 percent for 30 years. The buyer will also receive a second mortgage for the additional 20 percent, which is financed at zero percent.

Second Mortgage

The payments on the second mortgage don't begin until the sixth year of the mortgage and is added to the first payment of the first mortgage so that the homebuyer still has one monthly payment.

Benefits

Because the homebuyer has a second mortgage, they do not need to pay for private mortgage insurance. This is a great savings for new homebuyers.

Considerations

A number of people decide to refinance their mortgage loan before the 20% 2nd loan is added into the first payment in hopes of getting a lower monthly payment.

Source:

80/20 mortgages

20 Questions to Ask Before Buying a Home By Ronald L. Price