Getting Around Private Mortgage Insurance Problems
Dan Lewis If you apply for a loan, 20 percent is the magical number you must focus on. If you put the amount or more down on a loan, you do not have to pay private mortgage insurance.
Private mortgage insurance is the ultimate catch-22 when it comes to getting financing for a home purchase. Essentially, it is a tool used by mortgage lenders to protect themselves in case you default on the loan. The tool works by insuring the difference between your down payment and the 20 percent threshold.
The reason private mortgage insurance is a catch-22 is it is taken into account when calculating whether you can afford the loan. Even though it is a requirement by the lender, it may actually result in your failing to qualifying for a loan. Ah, welcome to the world of mortgage loans and high finance.
There are multiple ways to get around private mortgage insurance. Obviously, you could save up the 20 percent required, but that can be a large number given the astronomical cost of buying a home today. On a $500,000 home, we are talking about a down payment of $100,000. In short, it is not chump change. Ah, but there is a trick you are going to be happy to learn about.
In the finance industry, there is something known as the 80-10-10 loan and what a beauty it is. The 80 represents the 80 percent of the cost of the home that the lender will underwrite as the first mortgage. The first 10 in the equation equals the ten percent you will pay as a down payment for that home of your dreams. The second 10 represents a second mortgage equating to 10 percent of the purchase price. Who gives you this second? Often the same lender! This creative concept is why people both love and hate the finance industry.
So, who exactly is going to step up to the plate and help you with this type of loan? Well, the lender that underwrites the first mortgage is almost always going to be the party in question. As lenders go, savings and loans seem to be more comfortable with this approach than your average lender. That being said, practically any lender will do it if the circumstances meet their guidelines. They will, however, often require the second mortgage have a shorter term. The exact term depends on the lender, but a five to 15 year term is normal. About the Author
Dan Lewis is with Great Western Mortgage - providing San Diego debt consolidation loans. Dan Lewis may be contacted at http://www.gwhomeloans.com. Click here to view more articles by Dan Lewis. Reprinted with Permission from IdeaMarketers.com
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