When applying for a mortgage loan, down payments are generally required as part of the financing. Many traditional mortgages will only finance 80 percent of the home price. Thus, home buyers are obligated to provide the additional 20 percent. Having a down payment of 20 percent is ideal in a perfect world. In reality, few people have access to this type of money. For this reason, mortgage lenders are offering 80/20, or piggyback mortgage loans.
How Do 80/20 Home Loans Work?
The concept around 80/20 home loans is very simple. Ordinarily, if a home buyer did not have a down payment of 20 percent, they would have to purchase private mortgage insurance, (PMI), to complete the home financing. On average, PMI increases mortgage payments by $100.
If accepting an 80/20 home loan, PMI is not required. Instead, home buyers receive two loans to finance the home purchase. A first mortgage is approved to finance 80 percent of the home cost, whereas a second mortgage or home equity loan is approved to finance the remaining 20 percent.
Who Qualifies for an 80/20 Home Loan?
Any home buyer hoping to avoid private mortgage insurance may qualify for an 80/20 option. Piggyback loans are especially beneficial for first time home buyers. Young couples will also benefit from these loans. Usually, these individuals have not been able to build a large cash reserve. This way, they do not have to put off buying a home.
An 80/20 home loan is also offered to individuals with poor credit. Mortgage lenders vary in their loan qualification guidelines. Traditional lenders such as banks, credit unions, and mortgage companies prefer applicants that have a high credit rating. Thus, they may not approve loan requests for credit scores that fall below 640.
On the other hand, many lenders offer a range of bad credit mortgage loans. These consist of loans that provide assistance for down payments, closing costs, low mortgage rates, etc.
Applying for an 80/20 Loan with Bad Credit
Mortgage brokers are very effective with helping bad credit applicants find a fitting home loan program. To smooth the process, brokers have websites available, which offer explanations on various bad credit home loans. Moreover, you can request a mortgage quote online, and receive up to four offers from different lenders granting piggyback loans to people with bad credit.