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Are you interested in buying a home for sale but are worried about not having enough for a down payment. When it comes to buying a home for sale, most homebuyers are required to leave a down payment. Generally, a down payment should be at least twenty percent of the house's price. However, it is still possible to purchase a home for sale if you do not have the amount needed to pay for a down payment that is twenty percent of the house's price. One of the biggest drawbacks of paying a down payment of less than twenty percent of the house's sale price is that the loan is considered risky. As the mortgage loan lender will not have the amount they want to protect themselves in the events of a foreclosure, they will generally require that the homeowner carry private mortgage insurance (PMI) until their home's equity reaches eighty percent.
The reason that most homebuyers avoid taking on private mortgage insurance is because its costs are significantly high. PMI rates will vary depending on the length of a home mortgage loan, the type of mortgage loan, and the loan to value (LTV) number. An alternative to pmi are 80-20 mortgages. Also known as piggyback loans or as second trust loan, 80-20 mortgages allow borrowers to take out a first mortgage for eighty percent of the total loan and an additional mortgage for the other twenty percent. Essentially a second mortgage that is given at the time that a homebuyer is purchasing a home for sale, an 80-20 mortgage allows homebuyers to finance the costs of their real estate investment while leaving as little as a five percent down payment on a home for sale.
The biggest advantage of a piggyback loan is that it allows a homeowner to avoid paying the high costs of private mortgage insurance. Additionally, depending on your tax bracket and the loan type for your second mortgage, you may be able to save money on taxes. It is important that if you are looking for an 80-20 mortgage loan, that you find out how the different types of second mortgages can effect your tax savings. One of the biggest disadvantages of a piggyback loan is that it limits the amount of financial flexibility that a homeowner has. If a homeowner has an 80-20 mortgage loan, they may have difficulty refinancing their home or taking out a home equity loan.
There is also the possibility that the financial burden of a piggyback loan is longer than having to pay private mortgage insurance. If you are interested in obtaining an 80-20 mortgage loan, you should know that the most common mortgage loan arrangement is an 80-10-10 mortgage. This figure is divided as 80 percent of the first mortgage,10 percent of the second mortgage, and a 10 percent down payment.