Nearly half of all first-time homebuyers financed the entire cost of their home, rather than paying a hefty down payment. And many of these zero-down buyers did so thanks to the so-called 80/20 mortgage plan. This is a relatively new type of loan that was especially designed to help buyers who want to avoid paying down payments. As housing prices have skyrocketed, more and more buyers with good credit and strong income find that they cannot afford a home because of the difficulty in saving up enough to make the large down payment. On a home worth $200,000, a 20 percent down payment is a whopping $40,000. To respond to this challenge, mortgage companies began offering the 80/20 option.
Sometimes the 80/20 is referred to as a piggyback loan, because in reality it is two loans working in tandem as one. The first part works in a conventional way, and is for 80% of the purchase price. The 2nd part the smaller one is a 20 % loan. So when you apply for your mortgage, the lender actually qualifies you for 100 percent of the purchase price of your home, and then divides the loan into two sections.
For example, if you want to buy a house worth $100,000, the down payment...
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