Who Should Apply for 80/20 Loans?

80/20 Loans are not for everyone. This type of mortgage arrangement allows for 100% financing on a property, and can beneficial to some, yet not all people. With this arrangement, one lender provides 80% of the property value, while another lender covers 20%, eliminating the need for a down payment.

Who should apply

Individuals who are first-time buyers and have relatively good credit may consider an 80/20 a good option. This is because a lower credit score could hurt their chances of approved for the two loans, or they could be subject to higher interest rates.

Those who have little or no money available to cover a down payment (which is 20% of the home purchase price) and closing costs may also benefit from an 80/20 loan. This is one way to avoid PMI, private mortgage insurance, which often required by lenders if the down payment is low.

Another type of borrower that may be able to apply for 80/20 loans is one with a low debt to income ratio. Those who have little or no credit card debt and few other financial obligations such as auto loans, student loans or personal loans.

Who should not apply

If you have a significant amount of money set aside for a down payment and closing costs, it might be better not to take the 100% financing. You will save money on interest in the long run.

Individuals with debt to income ratios that are higher than 40%-50% may want to consider paying off other debts first.