The 80 20 mortgage is simply two loans for 100% of the purchase price. It is a first mortgage at 80% of the purchase price with a 20% second mortgage. If you are a conforming borrower, doing your loan in this manner will save you from having to pay mortgage insurance.
→ 80/20 piggyback loan: With this structure, the first mortgage finances 80% of the home price, and the second mortgage covers 20%, meaning you finance the entire purchase without making a down payment. 80/20 mortgages were popular in the early to mid-2000s, but are less common today.
For conventional loans, you typically have to pay for PMI if your LTV ratio is more than 80%, meaning you've made a down payment of less than 20% of the home's value. Your LTV ratio will decrease as you pay down your mortgage balance and if your home's value appreciates.
To figure out your LTV ratio, divide your current loan balance (you can find this number on your monthly statement or online account) by your home's appraised value. Multiply by 100 to convert this number to a percentage.
Divide what you still owe by the new value of your house and multiply the number you get by 100. This will give you the LTV ratio as a percentage. The more home equity you have, the lower your LTV will be. Calculate LTV and discover how much you could borrow with our mortgage calculators.
Such kinds of loans are popularly known as 80/10/10 loans, where the first mortgage is 80 percent of the home value, the second mortgage or Home Equity Line of Credit (HELOC) is 10 percent, and the rest 10 percent is the down payment by the borrower.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent). This also helps you avoid private mortgage insurance payments on your new loan.
Simply divide the loan amount by either the purchase price or appraised value of the property (whichever is lower), and then multiply by 100 for the percentage. As in our example above, a loan of $150,000 divided by an appraised value of $200,000 gives an LTV ratio of 75%.
Read our editorial guidelines here . Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”
One of the most common reasons to get a piggyback loan is to avoid paying private mortgage insurance (PMI), which protects the lender from default. It's cheaper for the homeowner to get two mortgages, and the interest is usually tax deductible.
Generally, a creditor such as a lender cannot use your age to make credit decisions. However, there are exceptions to this rule. For example, age can be considered in a valid credit scoring system but it can't disfavor applicants 62 years old or older.
Most lenders, however, offer borrowers with good credit scores loan amounts ranging from $30,000 to $50,000. Regardless of the maximum amount offered by the lender, how big of a loan you can get will depend on your credit history, current score and your debt-to-income ratio.
Since the housing recovery, piggyback loans have been limited to 90% loan-to-value. This means you have to put a down payment down (of 10%), rather than the 80-20 type loan used during the bubble.
Simply put, 80/20 coinsurance means your insurance company pays 80% of the total bill, and you pay the other 20%. Remember, this applies after you've paid your deductible.
The 2% rule states that you should aim for a 2% lower interest rate in order to ensure that the savings generated by your new loan will offset the cost refinancing, provided you've lived in your home for two years and plan to stay for at least two more.
A bad loan-to-value ratio would be any amount over 100%. This means you are "underwater" on your mortgage, or you owe more on your home than it's worth. This makes it much more complicated to refinance or sell your house.
Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI. For more information about canceling your PMI, contact your mortgage servicer.
Many lenders will also look at the monthly car payment in relationship to a borrower's monthly income. Fifteen percent or so is a pretty standard payment to income ratio. For instance, if you bring home 2,000 before taxes, lenders are more likely to approve a monthly car payment in the $250 - $300 range.
This rule suggests that 80% of effects come from 20% of causes. For example, 80% of a company's revenue may come from 20% of its customers, or 80% of a person's productivity may come from 20% of their work. This principle can be applied to many areas, including productivity for small business owners.
Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of the time and resources. Other examples you may have encountered: 80% of our revenues are generated by 20% of our customers. 80% of our complaints come from 20% of our customers.
You will have limited options. While most lenders will offer refinance loans to homeowners, they almost always have LTV requirements. If you have little or no equity in your home, you'll only be able to refinance through certain lenders or refi programs. You could impact your credit.
Our 80/20 loan program includes a first mortgage loan amount that is 80% of the purchase price, and a “piggyback” second mortgage for 20% of the purchase price. No down payment is required. Example: Purchase Price = $250,000. First mortgage loan amount = $200,000 (80%)
Key takeaways
An 80/10/10 piggyback loan is a type of loan that involves getting two mortgages at once: One is for 80 percent of the home's value and the other is for 10 percent. The piggyback strategy lets you avoid private mortgage insurance or having to take out a jumbo loan.
A home equity loan generally allows you to borrow around 80% to 85% of your home's value, minus what you owe on your mortgage. Some lenders allow you to borrow significantly more — even as much as 100% in some instances.