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allinaugust · #23 (**permalink**) 06-13-2007, 08:36 AM

Quote:

Originally Posted by tessa67

Actually the 80/20 would probably have been a better deal because of the funding fee of between 2-3%with a va loan. It was probably rolled into your mortgage because with a VA you can finance 103% (full purchase price and funding fee). So if your loan was for $100,000 you paid and addl' $2000-$3000 for the funding fee (unless the vet is disabled, then it is waived.) If this money was financed then you paid even more because you paid interest.

So if you got a $200,000 loan and paid a 2.2% funding fee that was included in the loan, it would be an additional $4400. If your loan was at 6% for 30 years, you actually end up paying over $9000.

In a different scenerio, it can be a better deal to take a loan and pay PMI instead of the funding fee. Say you don't have 20% to put down so you are going to pay PMI. You mortgage states that once you have 20% equity in the home, you can drop the PMI. If in two years your home has appreciated and appraises at an amount that gives you 20% equity, you may have paid less in those two years in PMI than you would have paid for a funding fee. If your PMI is $50/month, in 2 years that is only $1200, that may be much less than the funding fee you would have paid with a VA loan. This would also hold true if you are going to be in the home for a shorter period of time and would save money paying PMI for a few years instead of the funding fee.

I'm not saying that VA loans good to do, you just need to look at all your options and do the math. And compare costs and rates between a VA, conventional and FHA.

I would definitely do as the above poster says, and look at all your options. I googled the 80/20 loan, and found this:

80-20 loans help buyers who have no down payment
By HOLDEN LEWIS
Bankrate.com
As home prices climb, borrowers increasingly turn to 100 percent financing and especially loans that sidestep the need for mortgage insurance. One is known as the 80-20 mortgage.
How does it work? The home buyer takes out two loans -- the first for 80 percent and the second for 20 percent of the price. The borrower is expected to come up with the closing costs.
"It allows people to buy without a down payment and also works for those who don't want to touch their savings," says Anthony Hsieh, president of HomeLoanCenter.com.
The main drawback to split loans is that if the house loses value, the owner will owe more than the house is worth.
Many mortgage programs allow you to buy with little or no money down, but they usually require private mortgage insurance, or PMI. Mortgage insurance, which protects the lender from the costs of foreclosing on a house, is generally required when the loan is for more than 80 percent of the home's price.
The way to avoid paying mortgage insurance is by getting a "piggyback loan" -- a second mortgage to back up the first one. The first and main mortgage is for 80 percent, and the piggyback loan is for 20 percent of the home's price, minus any down payment. There are many combinations, such as an 80-15-5 loan. It means the borrower got a main mortgage of 80 percent, a piggyback for 15 percent and a 5 percent down payment.
The interest rate on a piggyback loan is usually higher than the rate on a first mortgage. But the combined payment is usually less than a loan of greater than 80 percent of the home's value plus mortgage insurance. This is especially true if the homeowner itemizes deductions on federal income tax. Mortgage interest is deductible but mortgage insurance is not.
Lenders structure 80-20 loans in many ways. At Hsieh's HomeLoanCenter, the first mortgage generally is a 5/1 ARM, with a fixed rate for the first five years, which adjusts annually after that.
The piggyback loan is a home equity line of credit that changes with the prime rate.
With Countrywide Home Loans, a 20 percent piggyback is always an equity line of credit pegged to the prime rate. The 80 percent first mortgage can be a fixed rate, adjustable rate or interest-only loan.

IMO, it's riskier to go with the "new" type of loans. My understanding of an 80/20 is that the "20" part is at a higher interest rate. I know several people with "creative" loans, and they are constantly looking to refinance them as rates go up.