Nearly Half Of All First-time Homebuyers Financed The Entire Cost Of Their Home, Rather Than Paying A Hefty Down Payment. And Many Of These Zero-down Buyers Did So Thanks To The So-called 8020 Mortgage Plan. This Is A Relatively New Type Of Loan That Was Especially Designed To Help Buyers Who Want To Avoid Paying Down Payments. As Housing Prices Have Skyrocketed, More And More Buyers With Good Credit And Strong Income Find That They Cannot Afford A Home Because Of The Difficulty In Saving Up Enough To Make The Large Down Payment. On A Home Worth 200,000, A 20 Percent Down Payment Is A Whopping 40,000. To Respond To This Challenge, Mortgage Companies Began Offering The 8020 Option.Sometimes The 8020 Is Referred To As A Piggyback Loan, Because In Reality It Is Two Loans Working In Tandem As One. The First Part Works In A Conventional Way, And Is For 80 Of The Purchase Price. The 2nd Part The Smaller One Is A 20 Loan. So When You Apply For Your Mortgage, The Lender Actually Qualifies You For 100 Percent Of The Purchase Price Of Your Home, And Then Divides The Loan Into Two Sections.For Example, If You Want To Buy A House Worth 100,000, The Down Payment Of 20 Percent Will Cost 20,000. With An 8020 Mortgage, The Lender Gives You 80,000 At One Interest Rate, And Then Gives You The 20 Percent Down Payment Of 20,000 At A Somewhat Higher Rate, For A Grand Total Loan Amount Of 100,000.The Reason For Splitting Up The Mortgage Into Two Distinct Parts Is To Help You Qualify For The Loan Without A Down Payment. Normally You Have To Put 20 Percent Down To Get A Conventional 80 Percent Loan, So With This Rather Clever Mortgage Plan, The Lender Is Letting You Borrow Your Down Payment. Then The Same Lender Can Turn Around And Let You Borrow The Rest Of The Loan. Yes, It Does Sound A Little Bit Contrived, And It Is Indeed A Rather Complicated Way To Arrive At A Basic Mortgage. But What Really Counts For Those Trying To Avoid A Big Down Payment Is That It Works, And Helps To Overcome The Down Payment Hurdle.You Can Expect To Pay Higher Rates On The Down Payment Or 20 Percent Portion Of The Loan. But The Rates Are Still Reasonable, And This Loan Arrangement Allows You To Buy Without First Saving Massive Amounts Of Money To Use For Your Down Payment. Later, If You Decide To Pay Off The 20 Percent Loan To Lower Your Monthly Payments, That Is An Option Available To You. Many Homeowners Refinance Once They Have Had A Few Years To Increase Their Equity, And Convert Their 8020 Into A More Traditional Type Of Mortgage.
