Finance
A Connecticut buyer uses a 'piggyback' loan structure (80-10-10). What does this mean?
AThe buyer makes three payments: one to the lender, one to PMI, and one to the escrow account
BThe buyer takes an 80% first mortgage, a 10% second mortgage, and makes a 10% cash down payment to avoid PMI✓ Correct
CThe lender provides 80% financing, the seller provides 10%, and the buyer provides 10%
DThe buyer finances 90% with one lender and 10% with another
Explanation
An 80-10-10 piggyback loan consists of: an 80% first mortgage, a 10% second mortgage (HELOC or home equity loan), and a 10% cash down payment. This structure allows the buyer to avoid PMI while putting only 10% down.
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Key Terms to Know
Private Mortgage Insurance (PMI)
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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