80/20 Loan

[Integra01]

Hi all,

Was wondering if anyone knew the benefits and cons of getting an 80/20 loan? My friend got one but she also got stuck with an adjustable rate.

[bartongrl1]

This is something I am not familiar with, but I will find out what I can for you and will post it here.

[bartongrl1]

As home prices continue to climb, borrowers increasingly turn to 100-percent financing, and especially home loans that sidestep the need for mortgage insurance.

One such loan is known as the 80-20 mortgage. The home buyer takes out two loans -- the first for 80 percent of the purchase price, and the second for 20 percent of the home's price. The borrower is expected to come up with the closing costs.

Read more here

[aceswild]

From what I read I don't see this in a very positive light. Granted it could get you in a home with no closing costs but if you are a first time home buyer you might be able to get the same benefit without the second loan. The second loan has a higher interest rate and has to paid off in full should you decide to sell the property.

This snippet from the article is what makes me alittle wary of this type of loan.

An 80-20 loan isn't just for the cash-strapped borrower. Some home buyers have ample down-payment money, but the money is invested and they don't want to liquidate it.

"For relatively wealthy people, it's a cheap way of borrowing money at these low interest rates," says Diane Saatchi, who deals with plenty of wealthy clients as regional vice president of the Corcoran Group in the East Hampton, N.Y.