You CAN Afford a Home

80/10/10 Mortgages

To reduce the risk of losing money, lenders select well-qualified buyers with a strong credit history, low income-to-debt ratio, and income stability.

Loan programs that help lenders reduce their risk are 80/10/10 or 80/15/5 loans. These combine a first mortgage and a second mortgage to spread the risk between two lenders. The numbers represent the first loan percentage, second loan percentage, and the down payment.

Here's how it works. The first lender offers a mortgage for 80% of the value. Another lender offers a second mortgage for 10% of the value. The borrower puts down 10%. With 80/15/5, the second lender offers 15% and the buyer puts down 5%.

With only 80% of the loan invested, 80/10/10 and 80/15/5 loans reduce the first lender's risk. The buyer makes a payment to the first lender and a second payment to the second lender.

Since neither lender lends more than 80% of the value, private mortgage insurance (PMI) is not required. PMI is only necessary when a lender lends more than 80% of the value. No private mortgage insurance means a lower monthly payment.