Finance Roll

These days there are some creative methods for avoiding the need to place a large down payment in order to purchase a home. This is fortunate considering that for many families homeownership would be out of reach were it not for these methods. In the past placing a down payment on a home was commonplace. Recently, as housing prices have risen drastically over the past couple of decades it has become harder and harder to save enough money to put forward a meaningful down payment. Luckily, there are now ways to go about getting 100% home financing. What will work best for you depends on your means and goals.

You may hear advertisements for 100% home mortgage loans. What this usually ends up being is an offer for an 80/20 home mortgage, also known as a "piggyback mortgage". An 80/20 mortgage is actually two mortgages that you get at the same time to finance 100% of the cost of a property. Typically, both loans are handles by the same lender and closing on both happens at the same time.

In an 80/20 mortgage, the 20% part refers to a second mortgage that acts as a down payment on the primary mortgage. This second mortgage can be an equity line of credit or a traditional second mortgage.

Because both mortgage's in an 80/20 situation are secured by your home, you need to be sure that you can afford the payments on both mortgage loans. Where you do end up saving money with an 80/20 loan is that you can avoid paying PMI in these situations. PMI stands for "Private Mortgage Insurance" and it can amount to a hefty monthly payment that can be avoided by placing a large enough down payment, as happens in an 80/20 loan.

It is important to know that even in a 100% financing situation, you will still need to have enough money on hand to cover your closing costs. Most lenders do not allow you to roll the costs involved in closing in to your home mortgage, even in a piggyback loan situation. Because you are closing on two mortgages at the same time, your closing costs for an 80/20 mortgage are generally higher than in a traditional mortgage.

Even though a piggyback mortgage will cost you more, it is still an attractive option for families that have adequate income but little savings. By taking advantage of this method of financing 100% of the cost of your home, you can experience the benefits of homeownership and work towards building equity in a home.