Say No To Mortgage Insurance (PMI) – 80/10/10 Loan Is Here
If you have only 10% downpayment and do not wish to pay a private mortgage insurance (PMI), we have the right solution for you – 80/10/10 loan. Yes, it’s back and this post will give you all the details you need to know.
How does a 80/10/10 loan work?
Usually a 2nd mortgage or a Home Equity Line of Credit (HELOC) is offered up to 90% of the home value. Such kind of loans are popularly known as 80/10/10 loans, where the first mortgage is 80 percent of the home value, second mortgage or HELOC is 10 percent and the rest 10 percent is the down payment by the borrower.
What are the benefits of a 80/10/10 loan?
PMI is required on all conventional loans with less than 20% downpayment. So if you had 10% downpayment and you opted for one loan of 90%, you would end up paying PMI. However an 80/10/10 loan eliminates the need for a mortgage insurance. In some cases this could mean a higher interest rate on the 1st mortgage. Hence, 80/10/10 loan is not for everyone. Depending on your credit qualification and financial goals, in some cases doing one 90% LTV loan and paying PMI may be a better idea. Make sure to contact us for a free consultation so that we can guide you which option is better for you.
Show Me The Numbers:
Example #1 – Using 80/10/10 loan to avoid PMI
Say you are buying a house worth $650,000 and you only have 10% downpayment i.e. $65,000. You need a loan amount of $585,000. You can get one loan of 90% and pay mortgage insurance on it. Or you can get two loans – 1st mortgage for 80% i.e. $520,000 and a 2nd mortgage (HELOC) for 10% i.e. $65,000. You don’t pay mortgage insurance on either the 1st or the 2nd mortgage.
Example #2 – Using 80/10/10 loan to qualify for a higher loan amount
Say you wanted to buy a $825,000 house and had only 10% downpayment. You wont qualify for any loan since Jumbo loans (loan amounts higher than conforming limits) require a minimum of 20% downpayment. So if your property is in a high cost area and conforming limit is $625,500 – with a 10% down your maximum loan amount can’t exceed $625,500. But with a 80/10/10 loan you can buy a $825,000 house by putting down only 10%. The first loan is not exactly 80% of the home value, but the program still works to help you buy a house like this with only 10% down.
Example #3 – Using 80/10/10 loan to avoid paying jumbo mortgage rates
Say you are buying a $900,000 house and have 20% downpayment. You can get one loan of $720,000. But you dont want to exceed the conforming limit and dont want to pay the higher interest rate of a Jumbo loan. In this example, you can get a $625,500 loan on the 1st (assuming that is the loan limit in your county) and can get a HELOC for $94,500. You are still paying 20% down, so technically its not a 80/10/10 loan. But using a HELOC on the 2nd and splitting the loan into two, you can avoid paying higher interest rate for a Jumbo loan.
How can I qualify for a 80/10/10 loan?
We offer this loan program for both home purchase and refinance. Property must be owner occupied. A minimum credit score of 700 is required for California (CA), Washington (WA) and Oregon (OR) borrowers. Some of the additional guidelines for the HELOC is mentioned below:
- Maximum loan amount of $350,000 (This is the maximum ONLY for the HELOC. To find the overall maximum loan amount see the chart below).
- No foreclosure or bankruptcy in the past 10 years
- $75.00 annual maintenance fees
- First 10 years draw period, next 20 years repayment period
The chart below details the total loan amount allowed (1st mortgage + HELOC), credit score requirements and interest rate over prime. Note – Loan is not offered by Arcus Lending, but through an approved lender. Rates and guidelines are subject to change without notice. For a live rate quote and to check if you qualify – complete the form here
Even though the 2nd lender allows a total of $1.275 million, we are restricted to a total (1st loan + 2d loan) of $975,500, since the first mortgage can’t exceed the conforming balance limit of $625,500 (in high cost areas). The maximum loan amount for 2nd loan is $350,000.