Down Payments: PMI, FHA Loans, and 80/10/10 Home Mortgages
Most people hope one day to own a home of their own. But for some, gathering the "required" 20 percent down payment to qualify for a home mortgage can be daunting. Fortunately, there are some options out there for those home buyers who struggle to gather together the full 20 percent. Just as with any aspect of a home mortgage, however, there are upsides and downsides to each of these options. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If you are unable to pull together that large of a down payment, you may be required to purchase Private Mortgage Insurance (PMI). In the case that you cannot pay your mortgage, this insurance will keep the lender from losing money.
Private Mortgage Insurance generally costs 0.5 percent of the purchase price of the property you are buying. If obligated to purchase PMI, the final costs of your home mortgage will be higher than they would otherwise. Happily, after you have built up a sufficient amount of equity in your home (20 to 22 percent), you can request to cancel the Private Mortgage Insurance.
A variation on this arrangement is an FHA loan, which will be insured by the government. With a government insured FHA loan, you may be able to qualify for a mortgage with a down payment of just 3 percent or more. These government insured loans require specific standards be met in order to qualify, and these standards can vary county to county. To find out whether or not you might qualify for an FHA loan, speak to a loan officer or a mortgage broker.
An 80/10/10 Home Mortgage
For those want to avoid the expense of PMI, there is another option. This is called an 80/10/10 home mortgage. With this kind of home mortgage, you obtain a second mortgage to cover the rest of the down payment. 80/10/10 works more or less like this: your first, larger mortgage will cover 80 percent of the cost of your home. You will take out a second mortgage to pay a down payment of 10 percent. Then you will provide the remaining 10 percent of the down payment out of pocket. More information Mortgage refinancing - Refinance - Home equity loan -
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