These were home loans that were essentially creative ways to get around the rule that you must pay Private Mortgage Insurance if you put less than 20% cash down on a home purchase. They were the darlings of the market in the late 90’s and early 2000’s.
Lenders issued the buyer two loans. Loan #1 was for 80% of the purchase price; Loan #2 was for the remaining 20% of the price. For buyers with 5% cash down, the lender issued an 80% loan and another 15% loan. Voila! No PMI payment required. This also made the monthly payment more affordable, since PMI payments can add $50 or $100 (or more) to the monthly payment.
80/20’s and 80/15/5’s are totally gone since the credit crunch of early 2007 changed the lending landscape. See my friend Shailesh Ghimire, The AZ Mortgage Guru for more on how these loans are totally unavailable.
Related Posts: Real Estate Glossary - PMI, FAQ files