Which financing option is commonly used to avoid private mortgage insurance?

Choosing 80-10-10 financing is a strategy often employed to avoid private mortgage insurance (PMI). This method involves taking out two loans: the first mortgage covers 80% of the home's purchase price, while the second mortgage covers 10%. The buyer contributes the remaining 10% as a down payment. By structuring financing in this way, borrowers can bypass the requirement for PMI, which is typically necessary when a down payment is less than 20%.

This particular financing option appeals to buyers who may not have a full 20% downpayment available but still wish to eliminate the added expense of PMI, which can increase monthly payments. The combination of the two loans allows them to manage their finances more effectively while securing the property they desire.

In contrast, conventional financing could involve PMI if the down payment is under 20%. FHA financing typically comes with its own mortgage insurance premium requirements regardless of the down payment amount, and VA financing does not require PMI at all but is specific to veterans and active-duty service members. Understanding these distinctions highlights why 80-10-10 is a preferred option among certain borrowers, particularly those looking to maximize their purchasing power without incurring additional insurance costs.