How 80-20 Mortgages Can Help You Avoid Down Payments

By: Grant Eckert

If you're a renter or someone that's looking for a new home, you want to make sure that you are getting what you want without paying a lot of money in the process. However, with today's skyrocketing housing market, it's becoming clear that housing prices aren't going down anytime soon. But when you want to get out of your renting situation and start building some equity, buying a home is the only option in this situation. That's where the 80-20 mortgage comes in to help you. By offering newer homeowners a chance to take out two loans to help with housing costs, you are getting a more convenient way of buying a home and paying it off.

What is an 80-20 Mortgage Anyway?

When you're just starting to look at housing options, you will find that there is a mortgage for everyone. Whether you have good credit or bad credit, no money for the down payment or some money, there is some sort of payment plan that will work for you. With the 80-20 mortgage, you will be taking out two separate loans. One is for the actual home itself (the 80 part) and the other part is the 20% that is usually required at the closing for the down payment. This allows you to avoid down payments and PMI which is mortgage insurance that must be paid until you have paid down 20%.

This is especially helpful when you are trying to buy an expensive home in which the down payment may be well beyond your means at the current time, though you would be able to pay it off eventually.

Is it Worth the Cost?

But the fact remains that this 80-20 mortgage almost sounds too good to be true. And when that happens, you should begin to question whether or not there is a 'catch' that you need to be aware of, especially when it comes to an investment that is as large as a home. Here are some things that you will want to keep in mind as you are deciding whether or not to choose the 80-20 mortgage.

The housing market is tricky right now - When you take out a loan on a home right now, there is always the chance that you will lose from this investment. Because the housing market is fluctuating so much, you might need to hold onto your home for a long time in order to rebuild your investment. However, you might also never get your home to rise in value, which means that you're stuck with two loans that you need to pay off, even if you're paying for someone that's not worth as much as it once was.

You may have a longer payoff time - Because you are going to be paying off two loans instead of just one, you will be paying for your home over an extended period of time. While this doesn't sound like a bad thing, you might want to realize that the longer you have a house loan, the more interest you will accrue.

You might be tempted to do an interest only loan option - While the monthly payments for this kind of setup are considerably low, you can end up paying off your home for a longer period of time, which could put you at risk for a decrease in your home's value.

You might not make as much money as you think you will in the future - Because the 80-20 mortgage makes it so easy to get a home without paying a down payment, you might be tempted to take your extra cash to pay for other things, rather than using it to help pay down your home loan.

Who Will Benefit Most from this Mortgage?

The 80-20 mortgage does have its benefits though for a few select groups of people. For example, those just out of college or just in a new career may not have the savings built up yet to handle a large down payment on a home. This kind of mortgage will allow them to be able to handle their loan as well as allow them to save on the side as their salaries increase.

This mortgage is also a good investment for those who are a little more well- off and want a low cost loan. What happens is that the richer folks can use these loans to keep their money liquid instead of trapped in a home. They can take the cash they would have spent on the home and invest it or do other things with it that will help them make even more money.

The 80-20 mortgage is a good way for many people to begin investing in a new home, but just as with any investment, you need to make sure you know what you're getting into.

Article Source: http://articleblender.com

About Author :
Grant Eckert is a writer for Absolute Mortgage Company. Absolute Mortgage Company is a leading provider of Home Mortgages | Mortgage Refinancing

Please Rate this Article

Not yet Rated