Zero down an option with these 80-20 loans

One such loan is known as the 80-20 mortgage. The home buyer takes out two loans -- the first for 80 percent of the purchase price, the second for the remaining 20 percent. The borrower is expected to come up with the closing costs.

"It allows people to buy without a down payment, or for those people who would prefer not to touch their savings to get into a house," says Anthony Hsieh, president of HomeLoanCenter.com.

"What we're seeing is a lot of young professionals," he adds. "People who have gotten out of college and have good jobs -- they have good credit, but they haven't had the opportunity to accumulate a lot of savings."

These mortgages are targeted at people who feel stuck on the rent treadmill. They can afford monthly rent that costs roughly the same as a house payment, but after they pay their monthly bills, they can't save much money toward that down payment.

Plenty of mortgage programs allow borrowers to buy houses with little or no money down, but they usually require private mortgage insurance, or PMI. Generally, mortgage insurance is required when the loan amount 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 mortgage. The first and main mortgage is for 80 percent of the home's price. The piggyback loan is for 20 percent of the home's price, minus the down payment, if any. If you see mention of an 80-15-5 loan, it means that the borrower got a main mortgage of 80 percent of a home's purchase price with a piggyback loan for 15 percent, then made a 5 percent down payment.

Piggyback loans usually cost less per month than loans with mortgage insurance. Mortgage interest is tax-deductible while mortgage insurance is not.

"It pretty much comes out to a straightforward mathematical evaluation," says Bob Walters, senior vice president of Quicken Loans. You merely compare the cost of an 80-20 piggyback loan with a loan that includes mortgage insurance. The piggyback loan usually costs less each month.

Lenders structure 80-20 loans in many ways. At Hsieh's HomeLoanCenter, the first mortgage generally is a 5/1 ARM -- a loan with a fixed rate for the first five years, adjusting annually after that. The piggyback loan is a home equity line of credit that changes with the prime rate. These loans, Hsieh says, are designed to be refinanced in three to five years.

With Countrywide Home Loans, the 20 percent piggyback is always an equity line of credit pegged to the prime rate, and the 80 percent first mortgage can be a fixed-rate, adjustable-rate or interest-only loan.

The 80-20 loans have their pros and cons, says Vijay Lala, vice president of product development at Countrywide. "The pros are that you can get into a home with almost no money down," he says. "You just have to have your closing costs, and you can get your payment as low as possible with the interest-only feature."

The main drawback is a biggie. If the house loses value -- a possibility in overheated markets where these loans might be especially tempting -- the owner ends up owing more than the house is worth. That becomes a problem if the owner needs to sell the house or wants to refinance the loan. In such a case, the owner has to come up with cash to repay the loan in full.

An 80-20 loan isn't just for the cash-strapped borrower. Some home buyers have ample down payment money, but the money is invested and they don't want to liquidate it. "For relatively wealthy people, it's a cheap way of borrowing money at these low interest rates," says Diane Saatchi, who deals with plenty of wealthy clients as president of Dayton-Halstead Real Estate in East Hampton, N.Y.

The benchmark 30-year fixed-rate mortgage rose 8 basis points to 6.08 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.36 discount and origination points. One year ago, the mortgage index was 6.00 percent.

The benchmark 15-year fixed-rate mortgage rose 10 basis points to 5.42 percent. The benchmark 1-year adjustable-rate mortgage rose 14 basis points to 4.15 percent.