What Is an 80-10-10 Loan, and Should You Get One?

  • An 80-10-10 loan is a piggyback loan, which means that you take out two mortgages, one big and one small.
  • Your first mortgage is for 80% of the purchase price, the second one is for 10%, and you’ll make a 10% down payment.
  • An 80-10-10 loan is a tool for sidestepping private mortgage insurance without putting 20% down.
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Affording a down payment on a home can be difficult, especially if your goal is to put 20% down to avoid paying for private mortgage insurance. An 80-10-10 loan could give you the best of both worlds — make a down payment of less than 20%, but you still don’t have to pay for PMI.

What is an 80-10-10 loan?

An 80-10-10 loan is a home loan that requires a 10% down payment. It’s a common type of piggyback loan, which means that you actually take out two mortgages — the smaller one piggybacks on the bigger one.

Here are what the numbers mean in an 80-10-10 loan:

  • Take out a mortgage for 80% of the home price
  • Take out a second mortgage for 10% of the home price
  • Make a 10% down payment on the home

If you have 10% for a down payment, you would normally take out one loan for 90% of the purchase price with a traditional mortgage. With an 80-10-10 loan, you take out two mortgages that together make up 90% of the home price.

The first mortgage will be a conventional mortgage. The second one will be a home equity loan or home equity line of credit. Instead of making one mortgage payment each month as you would with a traditional mortgage, you will make two separate mortgage payments.

An 80-10-10 loan provides a loophole that allows you to steer clear of private mortgage insurance. Usually, you have to pay for PMI if you have to borrow more than 80% of the purchase price. Taking out two mortgages instead of one helps you save money each month by avoiding PMI.

Example of an 80-10-10 loan

Let’s compare a traditional mortgage with an 80-10-10 loan. In this example, you’re buying a $400,000 home, and you have $40,000 (10%) for a down payment. With the 80-10-10 loan, you’re taking out a 30-year mortgage as the first mortgage and a 15-year home equity loan as the second mortgage.

Here are the details of your monthly payments with each option, assuming that the private mortgage insurance payment is 1% of your original mortgage amount each year.

Keep in mind, these would be your monthly payments until either a) you gain more equity in your home and no longer have to pay for PMI with your traditional mortgage, or b) your 15-year home equity loan ends and you only have one monthly mortgage payment.

If you’re considering taking out an 80-10-10 loan, consider which option would cost you more, both monthly and in the long run.

Pros and cons of an 80-10-10 loan

Pros

  • Avoid private mortgage insurance. PMI can cost up to a few hundred dollars each month. An 80-10-10 loan is a tool for sidestepping PMI, but consider whether PMI would be more or less expensive than your second mortgage payment through the piggyback loan.
  • It’s useful if you’re selling your home. Are you trying to sell your home and move into a new one? It might be hard to afford a 20% down payment if your original home hasn’t sold yet. This loan can help you afford to buy a home before your first one sells, without paying for PMI.
  • Get around the stricter requirements for jumbo mortgages. The FHFA sets a limit on how much you can borrow with a conforming mortgage, and if you need to borrow more, you’ll apply for a jumbo mortgage. Jumbo mortgages have stricter requirements than conforming ones, including a higher down payment, better credit score, and lower debt-to-income ratio. If you don’t qualify for a jumbo mortgage, an 80-10-10 loan might be a good choice.

Cons

  • Refinancing could be hard. Ask your lender or lenders about future refinancing options before you get an 80-10-10 loan. Refinancing with two mortgages can be tricky, especially if you have each mortgage with a different lender.
  • Second mortgage interest rates may be variable. HELOCs often come with variable interest rates. Because rates are at historic lows right now, a variable rate (also called an adjustable rate) is risky because your rate will probably increase once the initial rate period ends. There are some fixed-rate options with second mortgages, so ask your lender before making any decisions.
  • The savings might not outweigh the costs. You’ll pay closing costs on two mortgages, not just one. The interest rate on your second mortgage will also be higher than the one on your first mortgage. Everyone’s situation is different, so do the math to figure out whether paying for PMI or doing an 80-10-10 loan will be more affordable.

80-10-10 loan alternatives

If you don’t like the idea of making two mortgage payments every month, you have options other than taking out an 80-10-10 loan.

Bridge loan

Are you considering an 80-10-10 loan to finance the down payment on your new home while you wait for your current one to sell? You might prefer a bridge loan instead.

A bridge loan is a short-term home loan that helps you bridge the gap between when you buy your new home and when the finances from selling your original house come in. You will need a 20% down payment, though. Your choice between an 80-10-10 loan and a bridge loan will probably come down to how much you have for a down payment.

Pay for private mortgage insurance

You may just want to bite the bullet and pay for PMI, especially if PMI payments will be less than second mortgage payments. You can also cancel PMI later. Lenders are legally required to cancel PMI once you have 22% equity in your home, and you can request early cancellation when you reach 20% equity.

Buy a less expensive home

If you’re trying to decide between a jumbo mortgage and 80-10-10 loan, you might want to buy a home that costs less. That way, you can qualify for a regular conforming mortgage rather than take on even more debt.

This is also a good option if your motivation for getting an 80-10-10 loan is to get out of PMI. By buying a less expensive home, you may be able to afford a 20% down payment.

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