80/20 mortgages are also called zero down loans and/or no money down loans. These types of loans are increasingly popular throughout the nation. An 80/20 loan is actually 2 mortgage loans, a 1st mortgage (at 80% of the value of the home) and a 2nd mortgage (at 20% of the value of the home.) Theses loans eliminate the need to pay Private Mortgage Insurance (also known as PMI) and also generally provide considerably lower rates than other types of 100% financing. This type of financing helps to keep your payments low and gives you the freedom of not having to put any money down.
Example of how this works:
You want to buy a $300,000 home on a 30 year mtg with 80/20 option
240,000 1st mtg: 6.25% rate = $1477.72 Principal & interest payment
60,000 2nd mtg: 7.75% rate = $ 429.85 Principal & interest paymentAn 80/20 can also be accomplished by way of a seller carryback for 20% of the purchase price. This helps borrowers who otherwise might not be able to qualify for the 20% of the purchase price normally finance with a traditional loan, by a traditional bank.
This mortgage program is designed to allow customers not to put money down on the purchase price. This is where the term zero down comes from, you however need to be aware that there are closing costs associated with the purchase of your home. An easy way of utilizing the 80/20 loan program to it's fullest would be to have the sellers pay closing costs. This will get you the entire purchase price and closing costs without having to pay money at the closing.
