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80-10-10 Loan: When Two Mortgages Can Save You Money

An 80-10-10 mortgage lets you buy a home with two loans totaling 90% of the price, plus a 10% down payment, to avoid PMI or a jumbo loan.
Aug. 24, 2018
Finding the Right Mortgage, Mortgages
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An 80-10-10 loan lets you buy a home with two mortgages that total 90% of the purchase price and a 10% down payment. People get 80-10-10 mortgages mainly to avoid paying private mortgage insurance, sidestep the strict lending requirements of jumbo loans, or to buy one home before selling the other. 80-10-10 mortgages are sometimes called piggyback loans.

What’s an 80-10-10 loan?

80-10-10 loans are structured as two mortgages with a down payment. The first number always represents the primary mortgage, the middle number represents the secondary loan, and the third number represents the down payment.

An 80-10-10 loan is two mortgages, plus a down payment:
First mortgage:80% of the home's price
Second mortgage:10% of the home's price
Down payment:10% of the home's price

» CALCULATOR: Saving for a down payment

Pronounced “eighty ten ten,” it’s also called a “combination loan” by some lenders. It was called a “piggyback loan” during the housing bubble in the early 2000s, but that terminology isn’t used as often now.

80-10-10 is the most common combination, but other blends of numbers are possible.

The combination of 80-10-10 is the most common, but other blends of numbers are possible. For example, people sometimes get 75-15-10 loans to buy condominiums because they can get lower mortgage rates by borrowing a maximum of 75% of the condo’s value.

» Not sure if you want an 80-10-10 loan? Learn about the different types of mortgages

How to get an 80-10-10 loan

Getting an 80-10-10 mortgage requires applying for two separate loans: the primary mortgage and the second mortgage. In some cases, you’ll need to get the loans from separate lenders. Tell the loan officer for the primary mortgage that you want an 80-10-10 loan and request referrals for lenders that can do the second mortgage.

Applying for two loans may mean gathering two sets of financial documents, filing two applications and going through two closings.

If you think an 80-10-10 loan is right for you, your next step is to apply for a conventional loan at 80% of the home’s value, plus an equity loan or line of credit for 10% of the value.

» MORE: Best conventional mortgage lenders


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» MORE: Best home equity lenders

Avoiding mortgage insurance

Lenders require private mortgage insurance when the conforming loan is for more than 80% of the home’s value. An 80-10-10 loan takes advantage of a loophole in the mortgage lending rules because the primary mortgage is for 80% (or less) of the home’s price. The combination of the borrower’s 10% down payment and the second mortgage for the other 10% allows the borrower to avoid mortgage insurance.

» MORE: All about private mortgage insurance, or PMI

For people with very good credit, an 80-10-10 loan can cost less than a one with mortgage insurance.

The second mortgage in an 80-10-10 loan is usually a home equity line of credit, or HELOC. For people with credit scores of 740 or higher, 80-10-10 loans often cost less than traditional loans with mortgage insurance during the first 10 years while the HELOC is interest-only. The 80-10-10 advantage narrows for people with lower credit scores because of the higher interest rates they are charged.

» MORE: Requirements for home equity loans and credit lines

Replacing jumbo mortgages

Some buyers of more-expensive homes choose 80-10-10 mortgages to get around the stricter lending requirements for jumbo mortgages. Jumbo loans require bigger down payments, higher credit scores and more cash reserves than conforming mortgages do, says Henry Brandt, branch manager for Planet Home Lending in Irving, Texas.

» MORE: Jumbo loans: What you need to know

Here are two strategies to get around the tighter requirements for jumbo loans, Brandt says:

  1. Reduce the loan amount below the conforming limit. A borrower can use an 80-10-10 to get a conforming loan, which has looser lending standards, instead of a jumbo mortgage. Take the hypothetical case of someone who buys a $550,000 home in a market where the conforming limit is $453,100. The buyer has enough for a 10% down payment, but not enough for a 20% down payment. In this case, the borrower could make a $55,000 down payment, get a $55,000 HELOC, and take out a mortgage for $440,000, which is a conforming loan.
  1. Get more favorable terms with 20% down. Lenders charge higher interest rates for jumbos when the borrower puts less than 20% down, Brandt says. Someone buying a million-dollar home might not have $200,000 for a down payment, but might have $100,000, Brandt says. Such a borrower can get an 80-10-10 loan and snag a better interest rate on the primary mortgage. Some borrowers can even qualify for 80-15-5 mortgages if they have “only” $50,000 for a down payment on a million-dollar home.

» MORE: Find out how much that home is really worth

80-10-10 pros and cons

Pros

  • Allow conforming borrowers to steer clear of mortgage insurance
  • Borrowers can avoid jumbo loans, which have stricter requirements
  • Jumbo borrowers get a better mortgage rate by using the second mortgage as a supplement to the down payment

Cons

  • The borrower has to qualify for, apply for and close on two loans instead of one
  • Refinancing the primary mortgage later might be tricky because it requires the consent of the second-mortgage lender
  • Homeowners build equity more slowly when making the minimum, interest-only payments on the HELOC during the initial draw period (usually 10 years)
  • Interest rates on HELOCs are variable, so they can go up

If an 80-10-10 loan isn’t the solution you’re looking for, there are two options you can explore:

History of piggyback loans

During the housing boom at the beginning of the 21st century, lenders pitched piggyback loans as a way to buy a home with no money down. Typically, the home buyer got a primary mortgage for 80% of the home’s price and a HELOC for 20% of the home’s price. This structure allowed home buyers to put zero percent down while avoiding mortgage insurance.

These no-money-down piggyback loans contributed to an upward spiraling of home prices. And because these homeowners had risked little of their own money when buying their homes, they readily relinquished their homes to foreclosure when values began to fall. No-money-down piggyback mortgages were one of many contributors to the real estate bust and the Great Recession.

Having learned the lesson that borrowers were less likely to walk away from homes if they had put their own money down, lenders now require down payments for most borrowers, including the frequently required 10% down payment for 80-10-10 loans.

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