Just a few short years ago, if a buyer here in the San Francisco Bay Area attempted to purchase a home with a 10% down payment, the call I would anticipate from the listing agent might have gone something like, “Uhhh, your buyer is only putting 10% down. Can they even do that?” But as we get 2019 underway, with some higher-priced homes sitting on the market for longer and others seeing price reductions from their original list price, savvy buyers are taking advantage of these trends and again putting forward strong offers — albeit some with only 10% down. Can they still do this and win?
Of course the answer is “Yes!” But since some doubt still swirls around the topic, why don’t we look closer at jumbo mortgages with 10% down. Particularly the piggyback option.
“What is 80-10-10 Financing?”
I remember my grandmother calling the refrigerator a “Frigidaire” and our jeans “Dungarees.” So it is with 80/10/10 financing. It’s sort of the brand name we bandy about when what we’re really discussing is a concept, and the manifestation of that concept is subordinate financing, AKA as a “piggyback loan.” Most simply described, a buyer using this structure will be obtaining two loans instead of one in the purchase of a home. This is often referred to in broad strokes as an “80-10-10” loan.
“How Do 80/10/10 Loans Work?”
When we say “80/10/10” we are specifically implying the following:
- A first mortgage to 80% of the home’s purchase price.
- A second mortgage equal to 10% of the home’s purchase price.
- A buyer’s down payment for the remaining 10% of the purchase price.
Since the lending world is replete with guidelines, it doesn’t always play out exactly this way, and for any number of reasons. Just keep in mind that “80-10-10” could also just as easily be 75-15-10, or sometimes when we need to use a conforming first mortgage, you could even see a 62-28-10, for example. You get the idea, we don’t always have to be at a strict 80% and 10% for the loan amounts. But no matter how we structure the transaction, the sum of both loan amounts plus the down payment will equal 100% of the purchase price.
“Can I Qualify for a Piggyback Mortgage”
When obtaining a jumbo 80-10-10 loan, the first mortgage will typically be a fixed rate loan (30-year fixed) or a hybrid ARM (10/1 ARM, 7/1 ARM or 5/1 ARM). The second mortgage is most often a home equity line of credit (HELOC). There can be different qualifying criteria for both loans and your loan officer will have to navigate two sets of guidelines in most cases. Not all loan originators are adept at subordinate financing but for my clients, the pre-approval process for a piggyback loan is identical to the process for obtaining a single loan — we understand it on every level. While an 80-10-10 can sometimes be harder to obtain than a single loan, there are also cases where it can enable an approval that otherwise would not exist. For example, a buyer may not qualify for a single loan of $750,000, but may pass with flying colors if the loan is restructured as a first mortgage of $625,000 and a second loan of $125,000. Same total sum borrowed, but two very different outcomes.
As a home buyer looking for a jumbo loan with a 10% down payment, it may be intimidating to search for the perfect loan options. A preponderance of outdated and confusing information will often greet you “in the field,” and many real estate professionals will still tell you a 10% down payment jumbo loan is not possible. But as we stand on the cusp of 2019, we presently have the capacity to allow a buyer to make a 10% down payment, using the 80-10-10 structure, on a purchase price almost as high as $2,200,000. And here in the San Francisco Bay Area, this is not an uncommon scenario. Get in touch today if you have a home loan need of this nature!
Happy New Year!
Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959 Fax: 415-366-1590
rob.spinosa@rate.com
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.
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