What Is a Piggyback Loan?

How a piggyback mortgage works

A piggyback loan is a second, smaller mortgage taken out alongside your first mortgage to cover part of the home’s purchase price and down payment, often to avoid paying private mortgage insurance (PMI).

Ensure that taking out a piggyback loan won’t cost you more than a single mortgage with PMI.

Piggyback loans and primary home loans are taken out simultaneously when buying a property, according to Jason Lerner, a mortgage loan officer at George Mason Mortgage in Towson, Maryland. This financing strategy can be used for a home purchase or a refinance.

You may work with one lender who handles both loans, or you might need to coordinate with two different lenders. Either way, both loans close at the same time, and you’ll need to manage two monthly payments, often at different interest rates. Plus, you’ll have to pay some closing costs twice, which can add significantly to your upfront expenses.

Common piggyback loan structures

Piggyback loans follow specific formulas that describe how the financing is split between your first mortgage, second mortgage and down payment. Here are the most common structures:

• 80/10/10 loan: Your primary mortgage covers 80% of the home’s value, the piggyback loan covers 10% and you make a 10% down payment. This is the most popular piggyback structure.
• 80/15/5 loan: The first mortgage covers 80%, the second mortgage covers 15% and you put down 5%. This option requires less cash upfront but results in a larger second loan.
• 80/20 loan: Your primary mortgage covers 80% and the piggyback loan covers the remaining 20%, requiring no down payment. This structure is less common and typically requires strong credit and income qualification.

Why you might want a piggyback loan

There are several reasons to consider getting two home loans at the same time. The two most common reasons are to avoid paying for PMI and to qualify for or avoid jumbo loans.

Avoid private mortgage insurance

A mortgagor is typically required to pay for PMI if their down payment is less than 20%. If you have less than 20% of your new home’s purchase price saved up, a piggyback mortgage can help you close the gap to get to a 20% down payment and avoid the extra expense of PMI.

For example, if you make a 10% down payment on a home and take out a mortgage for the remaining 90%, you’d generally need to pay PMI. However, you could instead put down 10%, take out a mortgage that’s 80% of the home’s value and then get a piggyback mortgage that covers the remaining 10%.

This way, you’re still borrowing 90% of your home’s value, but your primary mortgage makes up only 80% of your home’s value, which means you can avoid PMI.

Avoid a large down payment

A piggyback loan may also make it easier to qualify for a jumbo loan, a type of mortgage for properties that are particularly expensive and require loan amounts exceeding the limits set by the Federal Housing Finance Agency (FHFA). In some cases, you can also use a piggyback loan to avoid having to take out a jumbo loan altogether.

“It can be beneficial to keep the first mortgage at or below the conventional loan limit and add a piggyback mortgage to get to the desired total loan amount and down payment,” said Lerner. That’s because jumbo loans often require a larger down payment and can have more restrictive guidelines.

Piggyback loans vs. other financing options

While piggyback loans eliminate PMI, the higher interest rate on the second mortgage may result in greater overall costs compared to a single loan with PMI that can be removed once you reach 20% equity.

Before committing to a piggyback loan, compare it to alternative financing strategies to determine which saves you the most money:

» MORE: Interest rates and how they work

How to get a piggyback loan

Because piggyback loans are taken out at the same time as a primary mortgage and are usually taken out to buy a home, one lender may take care of the entire loan process from start to finish. However, you may also work with two separate lenders — one for your primary mortgage and another for the piggyback loan.

Here’s what the process of getting a piggyback loan looks like, step by step:

1. Assess your finances: Review your credit score, income, debt-to-income ratio and available cash for a down payment. Piggyback loans typically require good to excellent credit (usually 680 or higher).
2. Determine your loan structure: Decide which piggyback structure works best — 80/10/10, 80/15/5 or 80/20 — based on how much you can put down.
3. Shop for lenders: Compare offers from multiple lenders who offer piggyback loans. Some handle both mortgages in-house, while others may require you to find a separate lender for the second mortgage.
4. Get preapproved: Apply for preapproval for both loans. Your lender will review your financial documents, credit history and property details.
5. Find and make an offer on a home: Work with your real estate agent to submit an offer with a preapproval letter showing you're qualified for both loans.
6. Complete underwriting: Provide additional documentation as requested. The underwriter will verify your employment, assets and review the property appraisal.
7. Close on both loans simultaneously: Sign all loan documents at closing. Both loans fund at the same time to complete your home purchase.
8. Manage two monthly payments: Set up payments with each lender or servicer to avoid missing a payment on either loan.

Piggyback loan eligibility and requirements

A few factors can impact eligibility for two home loans versus just one, said Sonja Bullard, a mortgage advisor at Acopia Home Loans in Cumming, Georgia. For starters, the higher combined loan-to-value (CLTV) ratio — or the ratio of all secured loans on a property to the value of that property — can cause the interest rate on the first loan to increase.

“This is the larger portion of the loan, so that increases the interest paid,” she said. With higher interest costs, some loan applicants may find that the mortgage amount exceeds what they can afford.

Bullard also noted that the piggyback loan often features a variable interest rate that fluctuates with the prime rate. This means that the piggyback loan can be more expensive when interest rates are high, and the loan payment may increase over time based on market conditions.

Qualification requirements for both loans can vary by lender and the home’s purchase price, but certain criteria are standard across most piggyback loan programs:

Types of piggyback mortgages

Piggyback loans typically take the form of a home equity loan or a home equity line of credit (HELOC). These two types of loans function similarly because they are secured by the equity in a property; however, there are differences in how they operate as second mortgages taken out at the time of purchase.

• Home equity loans: Similar to personal loans, they come with fixed interest rates, fixed payment amounts and a set repayment schedule that will not change. This makes home equity loans a good option for individuals who want to lock in an interest rate and avoid payment increases based on market conditions. When used as a piggyback loan, you’ll know your exact monthly payment from day one.
• HELOCs: These typically come with a variable interest rate and a fluctuating monthly payment as a result. A HELOC usually has a draw period when you can borrow funds and a repayment period when you can no longer access its credit line. As a piggyback loan, you’ll typically draw the full amount needed at closing, but your payment may vary over time as interest rates change.

Since both home equity loans and HELOCs use your home as collateral, your property can be seized through foreclosure if you don’t keep up with payments, just like with your primary mortgage.

» MORE: Reverse mortgage vs. home equity loan vs. HELOC

Piggyback mortgage examples

In the following example, a buyer is using a piggyback loan to avoid paying for PMI on a $400,000 property with a down payment of less than 20%.

In this case, the buyer makes a down payment of just 10%, uses a piggyback loan for an additional 10% of the purchase price, and takes out a primary mortgage for the remaining 80% of the home’s value.

Piggyback loan scenario

• Purchase price: $400,000
• 10% down: $40,000
• Loan term: 30 years

And here’s an example of using a piggyback loan to buy a home with a purchase price of $1,007,200.

In this situation, the buyer is using a piggyback loan to avoid having to take out a jumbo loan and meet the stricter eligibility standards it would require. They avoid a jumbo loan by keeping their primary mortgage just below the 2025 conforming loan limit of $806,500.

Piggyback loan scenario

• Purchase price: $1,007,200
• 10% down: $100,720
• Loan term: 30 years

Piggyback mortgage pros and cons

The benefits of a piggyback loan are pretty straightforward, but you'll also want to consider the downsides of getting two home loans instead of one.

Alternatives to piggyback loans

Before you take out two home loans instead of one, you should know that some types of home loans let you purchase a property with a low down payment or no down payment at all.

• FHA loans: Federal Housing Administration (FHA) loans come with down payment requirements as low as 3.5%, as well as low closing costs and easy credit requirements.
• HFA loans: Housing Finance Agency (HFA) loans are state-run programs that offer down payment assistance and favorable terms to first-time homebuyers and those meeting income requirements, helping you avoid the need for a piggyback loan entirely.
• VA loans: Department of Veterans Affairs (VA) loans don't have any down payment requirement, but you do have to be an eligible service member, veteran or surviving spouse to qualify.
• USDA loans: U.S. Department of Agriculture (USDA) loans can be accessed with no down payment, but these loans only apply to eligible properties deemed “rural” by the USDA.

In addition to these options, you can also purchase a home with a down payment below 20% and simply plan on paying PMI for a while. This added cost may seem unnecessary, but remember that PMI won't last forever.

You can request PMI cancellation with your lender after you’ve made enough payments to reach at least 20% equity in your property. Otherwise, your lender will automatically remove your PMI on the date your principal balance is scheduled to reach 78% of the original value of your home.

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