What is an 80-10-10 Mortgage When Buying a House?

Looking for creative ways to buy a house without a massive down payment? You might want to check out the 80-10-10 mortgage. This financing strategy helps you become a homeowner without paying private mortgage insurance (PMI) or saving up the traditional 20% down payment.

80-10-10 Mortgage: The 80-10-10 mortgage in real estate refers to a type of financing where the buyer puts down 10% as a down payment, gets a primary mortgage for 80% of the purchase price, and takes out a second loan for the remaining 10%. This approach can help buyers avoid paying private mortgage insurance (PMI) while still purchasing a home with less than 20% down.

Breaking Down the Components

The first mortgage makes up 80% of your home's purchase price. This loan works like a standard conventional mortgage - you'll make monthly payments over 15 or 30 years at current market rates. Most major banks and mortgage lenders offer these loans, but you'll need good credit and steady income to qualify.

Your second mortgage covers 10% of the purchase price. You can choose between a home equity loan with fixed payments or a Home Equity Line of Credit (HELOC) with flexible terms. These loans typically have higher interest rates since they're riskier for lenders.

The final 10% comes from your pocket as a down payment. You'll need to prove where this money came from - savings, investments, or maybe a gift from family. Lenders will verify the source to ensure you're not taking on additional debt to make the down payment.

Benefits of an 80-10-10 Mortgage

The biggest perk? No PMI! Private mortgage insurance can cost hundreds each month, so avoiding it puts real money back in your pocket. Plus, you're building equity in two loans instead of one.

You might also score some tax benefits since mortgage interest is often tax-deductible (talk to your tax advisor about your situation). The lower down payment requirement means you can buy a house sooner rather than waiting years to save up 20%.

Potential Drawbacks

Nothing's perfect, right? With an 80-10-10 mortgage, you'll deal with:

• Two monthly payments instead of one

• Potentially higher combined interest rates

• Extra closing costs for two loans

• Stricter qualification requirements

Who Should Consider an 80-10-10 Mortgage?

This option shines for buyers with:

• Good credit scores (usually 680+)

• Stable income

• Some savings, but not enough for 20% down

• Strong debt management skills

Application Process

You'll need standard mortgage documents like:

• Pay stubs

• Tax returns

• Bank statements

• Employment verification

The process takes about the same time as a regular mortgage, but you'll work with two lenders - unless one handles both loans.

Alternatives to Consider

Not sure if an 80-10-10 is right for you? Look into:

• Traditional mortgages with 20% down

• FHA loans with 3.5% down

• Conventional loans with PMI

• Other piggyback options like 75-15-10 or 80-15-5

Common Misconceptions

Many people think managing two loans is complicated - it's not! Set up automatic payments and you're good to go. Your credit score might actually improve if you manage both loans responsibly.

Making the Decision

Run the numbers! Compare total costs including:

• Monthly payments for both loans

• Interest rates

• Closing costs

• Long-term interest paid

Ready to Explore Your Options?

The team at Bellhaven Real Estate can guide you through the 80-10-10 mortgage process. We work with trusted lenders who understand these loans inside and out. Contact Bellhaven Real Estate today to discuss your home buying options and find out if an 80-10-10 mortgage fits your financial picture.