what is a 80 20 mortgage loan?

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  1. Reply
    May 2, 2011 at 11:25 pm

    It is 2 mortgages combined with the 1st mortgage holding 80% of the loan, and the 2nd mortgage holding 20% to total 100%. 80/20’s are typically done when someone wants to achieve a 100% loan, but wants to avoid PMI which would otherwise be charged on any 1st mortgage where the balance is over 80% of the value or purchase price.

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    May 3, 2011 at 12:09 am

    Very expensive!!! Be careful sometimes the fees can really add up. Check the Good Faith estimates (GFE) very closely and when / if you go to signing take the GFE with you to compare the numbers. I am not a morgage broker but I buy and sell a lot of property and bought one piece of property (my first investment property) like this and the lenders made a lot of money. A $ 340,000.00 loan cost me over $ 10,000.00 in fees at closing. Question every line of expense on the GFE and at closing. Right now the lenders are changing there loan programs daily and what a mortage broker may say one day is not necessarly going to be true the next or when you go to signing!!

  3. Reply
    May 3, 2011 at 12:54 am

    flamingojohn and twjull both gave correct answers, the first is technically correct; the second is very good advice.

    80/20 loans are used because there are people who buy and sell mortgages as if they were corporate bonds. Mortgages for only 80% of a home’s value are worth a lot more that loans for 90% or 100% of value. Since you are taking two loans (the first for 80% of the value, the second for 20%), your lender can easily sell off the 80% loan. The profit margin on the 20% loan will be much lower, but that will be sold as well.

    This is one of the practices that led to the housing bubble. These loans often come from “sub prime lenders” and are becoming very rare in the current market.

  4. Reply
    Nathan S
    May 3, 2011 at 1:39 am

    Check out the info below. Both answers above are correct – but you may want to dig deeper.

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