One option to getting into a home without making a large down payment is through 80/10/10 financing. It can be a good alternative to saving for a large down payment.
What exactly is 80/10/10 financing? It breaks up the mortgage loan. 80% of the loan is financed as a first mortgage. 10% of the loan is then in a second mortgage. The final 10% comes from a cash down payment, which is determined by the purchase price of the home.
There are advantages to 80/10/10 financing. It can get you into a home more quickly since it does not take as long to save for 10% of the purchase price of a home as it does to save 20%. This can be advantageous if you are in a community with rapidly rising home prices. Another big advantage is that this is a way to finance 90% of the home loan without having to pay private mortgage insurance (PMI). Most homebuyers prefer to avoid paying PMI since it can be expensive and may not be tax deductible. 80/10/10 financing lets you make a smaller down payment while avoiding PMI costs.
80/10/10 financing can even be a good option if you do have the 20% down payment already saved. Instead of putting all 20% into your new home, you can use 10% for a down payment but use the other 10% for other things. You can use it to invest, pay off other debt, or even to buy needed furniture for your new home.
80/10/10 financing gives you the flexibility to decide what works best for you while avoiding PMI.
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