How does an 80 20 loan work

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Example #1 – Using 80/10/10 loan to avoid PMI

Say you are buying a house worth $650,000 and you only have 10% downpayment i.e. $65,000. You need a loan amount of $585,000. You can get one loan of 90% and pay mortgage insurance on it. Or you can get two loans – 1st mortgage for 80% i.e. $520,000 and a 2nd mortgage (HELOC) for 10% i.e. $65,000. You don’t pay mortgage insurance on either the 1st or the 2nd mortgage.

Example #2 – Using 80/10/10 loan to qualify for a higher loan amount

Say you wanted to buy a $825,000 house and had only 10% downpayment. You wont qualify for any loan since Jumbo loans (loan amounts higher than conforming limits) require a minimum of 20% downpayment. So if your property is in a high cost area and conforming limit is $625,500 – with a 10% down your maximum loan amount can’t exceed $625,500. But with a 80/10/10 loan you can buy a $825,000 house by putting down only 10%. The first loan is not exactly 80% of the home value, but the program still works to help you buy a house like this with only 10% down.

Example #3 – Using 80/10/10 loan to avoid paying jumbo mortgage rates

Say you are buying a $900,000 house and have 20% downpayment. You can get one loan of $720,000. But you dont want to exceed the conforming limit and dont want to pay the higher interest rate of a Jumbo loan. In this example, you can get a $625,500 loan on the 1st (assuming that

is the loan limit in your county) and can get a HELOC for $94,500. You are still paying 20% down, so technically its not a 80/10/10 loan. But using a HELOC on the 2nd and splitting the loan into two, you can avoid paying higher interest rate for a Jumbo loan.

How can I qualify for a 80/10/10 loan?

We offer this loan program for both home purchase and refinance. Property must be owner occupied. A minimum credit score of 700 is required for California (CA), Washington (WA) and Oregon (OR) borrowers. Some of the additional guidelines for the HELOC is mentioned below:

  • Maximum loan amount of $350,000 (This is the maximum ONLY for the HELOC. To find the overall maximum loan amount see the chart below).
  • No foreclosure or bankruptcy in the past 10 years
  • $75.00 annual maintenance fees
  • First 10 years draw period, next 20 years repayment period

The chart below details the total loan amount allowed (1st mortgage + HELOC) . credit score requirements and interest rate over prime. Note – Loan is not offered by Arcus Lending, but through an approved lender. Rates and guidelines are subject to change without notice. For a live rate quote and to check if you qualify – complete the form here

Even though the 2nd lender allows a total of $1.275 million, we are restricted to a total (1st loan + 2d loan) of $975,500, since the first mortgage can’t exceed the conforming balance limit of $625,500 (in high cost areas). The maximum loan amount for 2nd loan is $350,000.


Category: Credit

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