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Avoiding Mortgage Insurance in California: The 80/10/10 Loan

We recently received an email from a potential home buyer who thought he had to wait until he had saved up 20% for a down payment, to avoid private paying mortgage insurance (PMI). But there are other ways to avoid PMI when buying a home in California, and the 80/10/10 “piggyback” loan strategy is one of them.

Private Mortgage Insurance in California

In California, private mortgage insurance is usually required when a conventional home loan exceeds 80% of the property value. PMI is a special type of insurance policy that is paid for by the homeowner. It is designed to protect the lender in cases where the homeowner is unable to continue making payments on the loan.

California private mortgage insurance is typically required when a loan accounts for more than 80% of the home’s value.

Without PMI, borrowers would not enjoy the low down payments that are available on mortgage loans these days. So it does play an important role in expanding access to financing.

But there are ways to avoid paying mortgage insurance in California, even in cases where the down payment falls below 20%. So let’s talk about those strategies.

Avoiding PMI with a 80/10/10 Piggyback Mortgage

One way to avoid PMI in California is by making a down payment of 20% or more. Inversely, this keeps the loan-to-value ratio at 80% or lower, thereby avoiding the “trigger” requirement for mortgage insurance.

But there are other ways to avoid PMI, and one is to use an 80/10/10 “piggyback” mortgage strategy. The piggyback name comes from the fact that there are two loans associated with the home purchase.

In the 80/10/10 loan scenario, a California home buyer makes a down payment for 10% of the purchase price. Instead of using a single mortgage loan of 90% to make up the difference, the borrower uses two loans “piggybacked” one on another. The first covers 80% of the purchase price, while the second one covers the remaining 10%. It all adds up to 100%.

Here’s how it works out:

  • 80: The first mortgage loan covers 80% of the purchase price.
  • 10: A second loan is used to cover 10% of the purchase price.
  • 10: The home buyer pays the remaining 10% as a down payment.

There are other types of piggyback home loans in California, but the 80/10/10 structure is one of the most commonly used for avoiding private mortgage insurance. With this strategy, you are making a down payment of less than 20% while avoiding the extra cost associated with PMI.

Related: Low down payment mortgages

Let’s Talk About Your Options

This article underscores the importance of speaking with an experienced mortgage professional. There are many different financing options available to borrowers these days, including the California 80/10/10 loan for avoiding PMI. The first step is to learn about those options, so you can make an informed decision. And we can help!

Bridgepoint Funding has been helping borrowers in California for more than 16 years. We offer competitive rates on a variety of mortgage products and programs, some with flexible qualification criteria. Contact us today with your questions, or to receive a rate quote.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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