Down Payments: PMI, FHA Loans, and 80/10/10 Home Mortgages

Almost everyone dreams of one day owning their own home. But for some, gathering the "required" 20 percent down payment to qualify for a home mortgage can be daunting. Fortunately, there are some options out there for those home buyers who struggle to gather together the full 20 percent. But as is true for pretty much every element in obtaining a home mortgage, each option has its pros and its cons. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If, however, you cannot make such a large down payment, a lender may require that you obtain PMI, or Private Mortgage Insurance. In the case that you cannot pay your mortgage, this insurance will keep the lender from losing money.
In general, PMI will cost around half of a percent of the price of the property you are purchasing. If obligated to purchase PMI, the final costs of your home mortgage will be higher than they would otherwise. Fortunately, when you have gained equity in your home (youll need 20 to 22 percent) you can request that the PMI be cancelled.
Similar to this arrangement is an FHA loan, which is a loan insured by the government. With a government insured FHA loan, you may be able to qualify for a mortgage with a down payment of just 3 percent or more. Because FHA loans are insured by the government there are specific criteria for qualification that can vary by county. To find out whether or not you might qualify for an FHA loan, speak to a loan officer or a mortgage broker.
An 80/10/10 Home Mortgage
For those want to avoid the expense of PMI, there is another option. They can go for an 80/10/10 home mortgage. With this option, you will use a second home mortgage to finance part of the down payment. 80/10/10 works more or less like this: your first, larger mortgage will cover 80 percent of the cost of your home. You will take out a second mortgage to pay a down payment of 10 percent. Then you will provide the remaining 10 percent of the down payment out of pocket.

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