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What Can You Do If You Don't Have 20% Down Payment?

By Allison Halliday | July 1, 2014

What can you do if you want to buy a home but don't have the necessary 20% down payment? An article in points out there are various options available, both within the private and government sector, but most include private mortgage insurance.

Private mortgage insurance or PMI is often built into the mortgage payments and is designed to protect the lender if you subsequently default on payments. It’s a percentage of the overall loan amount and is added to each monthly payment. These repayments can often add up to hundreds of dollars and are higher on the FHA loans as these typically have lower interest rates, lower down payments and more flexible credit requirements. Whichever option you choose it's still quite a bit of extra money to find each month, so what can you do if you want to avoid PMI? Luckily there are some choices.


One option is called the 80/10/10 program which first came about during the last lending boom. This particular scheme enables the buyer to put down a 10% deposit while the lender provides an 80% first mortgage. The remaining 10% is made up with a second mortgage, either supplied by the same lender or another lender. Apparently most lenders will allow second refinancing for up to 90% of the combined loan to value. Most conventional mortgage lenders don't tend to offer second mortgages, but there are a number of smaller lenders who may be able to provide these loans. Anyone wishing to take advantage of this type of scheme needs to have good credit scores, typically 700 or more and must have a 10% deposit to put down on the property.

Another option is to take out prepaid private mortgage insurance. This enables buyers with as little as a 5% deposit to prepay the mortgage insurance upfront in a one-time premium. This option isn't offered by all lenders so it is necessary to shop around. Rates for this type of option typically range from 1.75% to 3% of the total loan amount.

Anyone living in a family owned property or another rental property they are interested in purchasing has another option. This is called the gift of equity which is where the current owner can provide a gift of equity for at least 5% of the purchase price. This type of arrangement does require a letter of motivation from the current owner as to why they are selling their property to the buyer.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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