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Old 07-27-2005, 03:14 PM
moondogg moondogg is offline
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Join Date: Oct 2003
Posts: 145
Default Re: About to buy a house

[ QUOTE ]
What is an 80/20 loan?

What percentage is Property Mortgage Insurance tax?

[/ QUOTE ]

80/20 means you put 20% down, and get a mortgage for the remaining 80%.

Generally speaking, if you take out a mortgage for more than 80% of the property value, the lender will require you to pay mortgage insurance.


The reason for mortgage insurance is that if you default and they need to forclose on the property, there's a good chance that they will not recover the full value of the property in an auction, especially after the costs of forclosing and seizing the property.

So, because you are mortgaging more than 80%, they are going out on a limb with you, because if you default early in the mortgage (before you've paid much off), they stand to lose money on the deal. Mortgage insurance insures the lender against this loss, but you have to pay the premiums for it.

You'll get a fee attached to your money payment, and you will have to pay it periodically until you owe the lender less than 80% of the property value.

In recent years, many people have gotten their properties reappraised a year or two after the mortgage is closed, because even though they have not paid much off, the value has increased, which puts them below the 80% threshold and gets them out a mortgage insurance.

Some lenders offer 95/5 or 90/10 mortgages the do not require mortgage insurance, but these are usually special programs. Either they are backed by FHA (which will probably require you to be poor), or they screw you with interest or terms.
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