Is an 80-10-10 or 80-15-5 mortgage the best home loan for me?
There are countless ways that home loans can be structured when purchasing or refinancing a home in Dallas or anywhere in the country for that matter. One of the unique programs that has been around for years is a combo loan, typically seen as an 80-10-10 mortgage or 80-15-5 mortgage. This means the overall loan is broken up into 2 separate loans. The first loan is 80% or less of the purchase price or value of the home and the second loan covers the difference after taking into account your down payment or home equity. This strategy can also be used to avoid a jumbo loan amount.
For example, a $500,000 purchase price with 5% down could be structured with a first loan of $400,000 and a second loan of $75,000 for a total loan to value of 95% (80/15). Depending on your unique situation, there can be many advantages that come from this type of home loan structure.
Features of a combo loan, 80-10-10 or 80-15-5 mortgage:
- Finance up to 95% of the purchase price or home value – With a first loan of 80% and a second up to 15%, you can own a home with a Conventional mortgage with as little as 5% down.
- No mortgage insurance – Mortgage insurance that is paid as part of a home loan is no longer tax deductible and can force unwanted up-front or monthly costs. Learn other ways to avoid monthly mortgage insurance with a 5% or 10% down payment.
- More tax deductions – While mortgage insurance is no longer tax deductible, the interest that you pay on a loan for your primary residence is and will continue to be tax deductible. This means a lower after tax payment compared to options that include mortgage insurance.
- Waive your escrow account – manage your property taxes and homeowner’s insurance on your own as opposed to paying monthly with the mortgage payment.
- Avoid a jumbo loan – Buying a high priced or luxury home? Conforming and conventional loans provide more options and flexibility when it comes to loan terms and getting the lowest interest rate. The conforming or conventional loan means more options and lower rates for your home purchase when compared to a jumbo loan. A combo loan can help you finance up to 95% of the purchase price while staying within the maximum conforming loan limit (** $424,100 as of 2017). Example: $500k purchase price w/ 80% first loan at $400,000 and second loan at 15% or $75,000.
- No prepayment penalty – Pay down the balance on the higher interest rate 2nd loan without penalty. Save interest and have a fast and easy way to pay down your overall home loan balance so all you have left is one low fixed rate.
The 80-10-10 mortgage, 80-15-5 mortgage and other combo loan options can be a great tool and home loan strategy for the right person. Like other home loan options, there can be advantages and disadvantages. The only way to truly know what the best home loan is for you is to have your mortgage lender prepare a Total Cost Analysis that compares each home loan option side-by-side so you can see how each scenario impacts not only your monthly payment and out-of-pocket expense, but also the short and long-term benefits of each option.
If you’re interested in finding out which home mortgage is best, we invite you to apply online or call us today at 972-499-0454. One of our experience mortgage planners can help you determine which option is best for you. The review will take only minutes, but could save you thousands of dollars by helping you choose YOUR best home loan.
Updated: January 10, 2017