Using an 80-10-10 plan with a Jumbo mortgage
My wife and I are first-time buyers looking to purchase a two-family home in Chatham, N.J., for $580,000. We would like to put down 10 percent, and finance the rest using an 80-10-10 plan. Can we use an 80-10-10 plan for this size of a loan?
-- B.C. Bungalow
An 80-10-10 loan is where you get a first mortgage for 80 percent of the purchase price and at the same time borrow an additional 10 percent as a second mortgage. The last 10 percent is your down payment.
Since the primary mortgage lender isn't lending more
than 80 percent of the home's value, private mortgage insurance
(PMI) isn't required. The idea is that the savings on mortgage insurance
premiums more than offsets the higher interest rate and additional
costs associated with taking out a second mortgage.
Make sure that it's worth your while to go through
these additional gyrations. PMI isn't forever, and the second mortgage
will typically be paid off over 10-20 years vs. the 30-year first
mortgage. Make your lender or mortgage broker lay out the costs
of a 90-10 mortgage and an 80-10-10 loan program.
Since you're looking for both a jumbo loan (a first
mortgage of more than $300,700) and an 80-10-10 loan program, you
may be better off shopping for a loan with a mortgage broker rather
than going to individual lenders on your own. Michael Larson's feature
on mortgage brokers is worth reading, especially to learn the
five steps to finding a good broker.
As first-time homeowners, you'll need a strong credit
history and good income to qualify for these loans. It would be
worth your while to review your credit report and even get a copy
of your credit score.
Review your credit report for inaccuracies and dispute
any erroneous information.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "Financing
a home," "Saving & investing" or "money."