Expert: Ray Beggs - 8/15/2006

Question
I am worried about how much I will be paying monthly. It sounds like it will be a lot since I will be taking two loans. Will I need to pay mortgage insurance on the 20%?
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Followup To

Question -
Hi Ray,

I am looking to buy a home. I was wondering how the no money down system works. I really want to own some property but I dont think I can qualify. I hardly have any money saved up as I have been paying rent for sometime. I really ready to buy a home but I think that there must be some draw backs to having 100% financing. I live in SF California and looking for a property in Richmond, CA or anywhere for that matter as long as its in the bay area. I have a credit score of 750. Thank you so much for your help

Thanks

Michael

Answer -
Hi Michael,

Thanks for the question. It's actually a pretty easy process, when you have good credit. (Like you do)

You would probably want to get what is known as an 80/20 loan. That's an 80% 1st loan and a 20% 2nd loan to cover the entire purchase price. The reason you wouldn't want to get a 100% loan is that anytime the 1st goes over 80% the bank charges you mortgage insurance and that's a waste of money.

Also, in a lot of cases you could ask the seller to pay part or all of your closing costs as a closing cost credit.

Take care and good luck home hunting,

Ray

Answer
Hi Michael,

You do not have to pay mortgage insurance on the 20%. You only pay mortgage insurance on loans that exceed 80% of the homes value. 80/20's do have higher payments then say loans with 10% or 20% down, but it's probably not as much as you might think. The rule of thumb for loans is $6 per month for every $1000 borrowed so if you bought a house for $500,000 and put down 20% ($100,000) you'd save about $600 per month. 10% down would only save about $300 per month. You can also get loans that are "interest only" to  help keep your payment down.

Hope this helped,

Ray