The 80 20 home loan is a type of 100 percent financing that eliminate the need to pay for mortgage insurance. Through this type of loan, the home buyer avails of two loans, the first one for the 80 percent of the purchase price, and the second one for the remaining 20 % - the price of the home. The disadvantage of this type of loan is the borrower has to pay the closing costs. However, this type of loan is very practical to avail, since it eliminates the need to pay the down payment, especially if one doesn’t want to pour too much money for a new house.

Most people who are used to renting find the 80 20 home loan very advantageous. Having realized that the rent costs are almost the same as home payment, this type of loan can help them purchase a home while still having enough money for monthly utilities, which many homebuyers often overlook in their effort to have a new home. Simply put, the 80 20 home loan is especially made for those who cannot save up enough for a home down payment.

Here is how the 80 20 home loan works. There are mortgage homebuying programs that allow borrowers to buy a home without having to give money right out front. However, any 80 20 home loan program would require a homebuyer to have a private mortgage insurance. This is assurance to the lender on the costs of foreclosure is the borrower fails to complete his or her loan payments. In most cases, private lending companies require the insurance only when the loan amount is greater than the 80 percent of the home price.

However, there is a way to go about paying the mortgage insurance. There is a need for a second mortgage to back up the first mortgage. While the first mortgage is for the 80 percent of the home price, the succeeding loan is for the remaining 20 percent of the home price after the down payment has been deducted. That is, if there is a down payment. If it has, then the loan is more aptly called as 80 15 5 loan, wherein the 80 represents the percentage of the home’s purchase price, the 15 as the backup loan, and the 5 indicating the borrower has already provided a 5% down payment. The second loan is usually referred to as a piggyback loan.

Expect the piggyback loan to have a higher interest rate than that of the first mortgage. But compared to a loan of more than 80% of the home’s price, plus mortgage insurance, the 80 20 home loan would still cost less. Other than that, there are still other reasons why this type of loan is more economical, such as the deductions on federal income tax, since mortgage interest is deductible, unlike mortgage insurance.

To sum it all up, this particular type of home loan allows you to move to your new home even with no money down, while having monthly mortgage that is as low as possible. But, the downside of this type of loan is that you have to deal with closing costs.