01-13-2009 01:34 PM
When borrowers go the 80/20 route to avoid PMI, do they use different lenders? If not, what makes the situaion safer for the lender when the borrower is still borrowing 100% of the homes value?
Also, since the rule to avoiding PMI is having lower than 80% LTV, why is the second loan not considered a 20% downpayment?
01-13-2009 03:17 PM
80/20 loans aren't very common anymore, I don't know of any lenders still offering them. Back when you could do them in their "glory" you could pick a different 1st & 2nd mortgage lender. However lending guidelines tightened up and the secondary market for stand alone 2nd mortgages dried up, so those who did 2nd mortgages without having it done with a 1st mortgage from the same lender started to reduce their CLTV's to 95%, and then to 90% which is where most of them lie today. As far as the lenders who still did the 1st & 2nd mortgage togheter, they still were doing 80/20's for many months after you could piece together two lenders to do an 80/20, but eventually they too started reducing the CLTV of their 2nd mortgages to where 80/10/10 combo loans are typically the highest combo loan you can find.
In that situation the 2nd mortgage is a down payment on the 1st mortgage, but there is still the 2nd mortgage closing simultaneously to 100% CLTV, meaning you still aren't putting and money down on the transaction itself.
01-13-2009 06:02 PM
The lenders turn an 80/20 loan into their benefit by charging you a higher rate on the 2nd mortgage, as well as a higher rate on the 1st mortgage than if you were to only have a 1st mortgage at 95% LTV or lower. So they don't qualify for the same rates.
Forums posts are not provided or commissioned by FICO. Forums posts have not been reviewed, approved or otherwise endorsed by FICO. It is not FICO's responsibility to ensure all posts and/or questions are answered.Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more
FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.