When purchasing a home, if less than 20% of the purchase price is placed as a down payment, mortgage insurance (MI) will be required. The amount of mortgage insurance you will need to pay can depend on the loan size, amount of down payment and your credit score. With some loans, mortgage insurance is cancellable when your equity in the home becomes 20% or more, but with others, mortgage insurance can be required for the life of the loan.
Right now you might be thinking, do I really need to pay mortgage insurance… isn’t there a way I can avoid paying it? Other than placing 20% or more down, there is a way to bypass mortgage insurance and it’s by using an 80/10/10. Following is a brief description of an 80/10/10…
80% Conventional First Mortgage
The first component of an 80/10/10 is a conventional first mortgage that will cover 80% of the home’s value or purchase price, whichever is lower. When the first loan is 80% or less of a homes value or purchase price, no mortgage insurance is required.
10% Second Mortgage
The next component is a second mortgage which covers 10% of the home’s value or purchase price. Mortgage insurance is not required for this type loan, but it will carry a higher interest rate than the first mortgage.
10% Down Payment
The last component represents a 10% down payment paid by the homebuyer.
An 80/10/10 can be a great option for owner occupant homebuyers purchasing a single family home that want to purchase with a low down payment and avoid paying mortgage insurance.
Subject to qualifying. Other restrictions may apply. Please see loan consultant for details.