Home Financing 80-15-5

Buyers who are short on cash like 80-15-5 financing because it allows them to finance 95 percent of the purchase price without paying property mortgage insurance (PMI). PMI is insurance that protects lenders from a buyer default.

PMI is required when the mortgage amount is more than 80 percent of the purchase price. The cost varies but it can be equivalent of an additional 1/2 to 1 percent of the loan amount per year. This cost is added to the buyers monthly payment. Furthermore, this cost is not tax deductible.

With 80-15-5 financing, the buyers make a cash down payment of 5 percent of the purchase price. Than they take out two mortgages: a new 1st mortgage for 80% of the purchase price and a 2nd mortgage which is 15% of the purchase price. The 1st and 2nd mortgages are from the same lender. The interest rate on the second mortgage is usually 2.5% higher than the going rate on the first and is normally amortized over 15 years. However, compared to a traditional 5% down mortgage with PMI your total payments are relatively the same.

Plus, there are additional advantages of an 80-15-5: 1.) since you have a 1st and 2nd mortgage with no PMI you’ll now have a bigger tax write-off every year, 2.) you’ll build up equity in your home much sooner because the 2nd mortgage is on a 15 year term, and 3.) there’s no prepayment penalties on the loans so if you expect that your income will increase dramatically over the next few years, allowing you to save more cash, you can pay the second mortgage off in full; thus, lowering your total monthly mortgage payment. You would now just have the 30 year first mortgage payment and a 80% LTV.

Feel free to contact Doug anytime. He is always available, so call him today or apply online, and let him go to work for you!  619-286-9596