Use an 80-10-10 loan. This program involves getting two loans. The borrower gets a first mortgage equal to 80 percent of the sale price, a second mortgage for another 10 percent of the price and puts the remaining 10 percent down at closing. The second mortgage has a higher interest rate. But since it applies to 10 percent of the total loan, the monthly payments on the two mortgages can still be lower than the monthly payment on one home loan with mortgage insurance. Plus, interest on the second mortgage is tax-deductible. The 80-10-10 loan isn't the only plan available; borrowers can get 80-15-5 loans or other combinations.
Here's how it works: Under the 80-10-10 plan, the 10 percent down payment on a $150,000 house is $15,000. The first mortgage is $120,000 at 7 percent, which comes to a monthly payment of $798.36. The second mortgage for $15,000 has a 9 percent interest rate, making a monthly payment of $120.69. The total monthly payment for both loans is $919.05.
With a $15,000 down payment, one mortgage of $135,000 at 7 percent has a monthly payment of $898.16, plus mortgage insurance of $56.25, making a total payment $954.41.
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