Because of the risk to lenders, in previous years, financing wasn't always available to you borrowers with low down payments. In simple terms, a down payment is the portion of your home’s purchase price that a buyer puts into the escrow. But lenders want to lend. So to mitigate the risk with downs under 20% and protect against any default on a loan, lenders now offer private mortgage insurance.
PMI enables borrowers to obtain a mortgage with a lower down payment while protecting the lender from defaults. And, as of Jan. 1, new legislation allows borrowers with household adjusted gross income of $100,000 or less who buy a home in 2007 to deduct the full cost of the mortgage insurance they pay during the 2007 tax year. PMI typically amounts to about one-half of one percent of the loan, according to the Mortgage Bankers Association of America.
So if you put 10% down on a $400,000 loan, for example. The lender multiplies 90%, or $360,000, by .005 percent. The result is an annual PMI of $1,800, which is divided into monthly payments of $150. However, creative financing treatments like the 80-10-10 loan can help homeowners with low downs avoid PMI payments.
So what is an 80-10-10 loan? The program is a package of two loans, one added on top of the other, and a 10% down payment. The 90% mortgage is made up of one mortgage equal to 80% of the sale price. The remaining 10% loan, which can be either fixed or adjustable, has a higher finance rate. However, since that higher finance rate applies to only 10% of the loan, the payments on an 80-10-10 loan are still lower than a single mortgage with PMI insurance. And the mortgage interest on the 80-10-10 loan is tax deductible.
If you have questions about an 80-10-10 program, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
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