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What is a piggyback loan?

Secure funds for your down payment with a smaller loan

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Written by Bradley Schnitzer
Edited by Cassidy McCants
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With a conventional mortgage, lenders make you pay for private mortgage insurance (PMI) on top of your regular mortgage payment if you don’t put down at least 20% when you’re buying your home. For many borrowers, this makes it difficult to afford their dream homes both upfront and in terms of monthly payments.

Piggyback mortgages are smaller home loans you can take out at the same time you get your primary mortgage to help solve this problem. When you get a piggyback loan, your larger mortgage might make up only 75% to 80% of your home’s total value, which can help you avoid PMI without paying 20% or more out of pocket.

If you’re considering this loan option, learn about how piggyback loans work in more detail, then review the pros and cons to help you decide if this type of loan is worth it for you.

How a piggyback mortgage works

A piggyback loan is a smaller mortgage you can get alongside your main mortgage. It lets you borrow additional funds without needing private mortgage insurance (PMI), which lenders generally charge if you put down less than 20% of the amount of your conventional mortgage.

For instance, if you make a 10% down payment and take out a mortgage for the remaining 90%, you’d generally need private mortgage insurance. However, you could instead put down 10% and borrow a mortgage that’s 80% of the home’s value — 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.

Even some of the happiest borrowers consider the costs of PMI a pain, like one of our reviewers from California, who was pleased with their lender but said in a phone interview that the “only thing I have issue with is the PMI insurance and closing costs.”

Types of piggyback mortgages

Piggyback mortgages are described by how much of the home’s price they cover. The two main types of piggyback loans are 80/10/10 and 75/15/10 configurations.

An 80/10/10 loan involves covering 80% of the home’s value with your main loan, 10% with the piggyback loan and 10% with the down payment. Similarly, a 75/15/10 loan means taking out a primary mortgage for 75% of the home’s value, covering 15% of the purchase with a piggyback loan and putting down 10%.

Can you get a piggyback loan to avoid a jumbo mortgage?

One benefit of a piggyback loan: It can help you avoid taking out a costly jumbo mortgage. You can get a primary mortgage that’s below the conforming lending limit, then take out a piggyback loan to get the remaining funds to cover the total cost of the home you want.

Jumbo mortgages are home loans for amounts higher than Fannie Mae and Freddie Mac’s conforming loan limits for a given area. In most of the U.S., this limit is $647,200 as of 2022, but certain high-cost areas get extended limits up to $970,800.

Jumbo loans aren’t an option for everyone; they’re more difficult to get and typically require a borrower with a high credit score, a low debt-to-income ratio and several months of cash reserves. Often, you’ll also have to put down a larger down payment — and interest and fees tend to be higher than with conforming loans.

One of our reviewers from Boston, who says they have more than $1.5 million in assets and stock options, reported that they didn’t qualify for a jumbo mortgage because their “debt to income ratio was too high,” their bonus didn’t count because it was only for one year and the company was “no longer counting rental income.”

Piggyback mortgage pros and cons

The benefits of a piggyback loan are pretty straightforward, but make sure you consider the downsides — like potentially paying closing costs (often 2% to 5% of the total purchase price) twice — before you decide to go with this secondary loan option.

Pros

  • Helps you avoid PMI
  • You can borrow more without taking out a jumbo loan
  • Allows for a lower down payment
  • Potentially higher home interest tax deduction

Cons

  • You start with less equity in your home
  • You may have to pay closing costs twice
  • Monthly payments could still be higher than one loan with PMI
  • Must keep paying off regardless of equity (even after the PMI period would have ended)

FAQ

How much is mortgage insurance?

PMI, which essentially protects the lender if you stop making payments on your mortgage, typically costs anywhere from 0.5% to 1% of your mortgage amount each year, depending on the size of the mortgage and your down payment.

What is a double mortgage?

A double mortgage typically involves taking out a second mortgage loan against an existing property you’re already paying a mortgage on.

A piggyback loan is a type of second mortgage, but it differs from a traditional home equity loan or HELOC in that you borrow it at the same time as your primary mortgage. Make sure you know the benefits and drawbacks — taking out another mortgage can mean committing to years and years of paying both principal and accumulating interest.

What is the average down payment?

The average down payment is actually lower than 20% (more like 12%). Many conventional mortgages allow for as little as 3% down, and FHA loans require down payments as low as 3.5%. ( USDA and VA loans do not have a down payment requirement.)

However, if you can afford to make a down payment of 20% or more, you can avoid PMI on a conventional loan and potentially pay less in interest over time.

Bottom line: Should you get a piggyback loan?

Piggyback loans are essentially a way of getting around certain mortgage requirements. They can help you avoid PMI on conventional mortgages, and they can get you out of borrowing a costly jumbo loan if the home you want is beyond the current conforming loan limits set by Fannie Mae and Freddie Mac.

You’ll want to ensure that a piggyback loan won’t cost you more than a single mortgage with PMI. Taking out this kind of loan could mean you’ll have to pay closing costs twice, and you’ll have two monthly payments to deal with.

If it’s not too far beyond your budget, it might make more sense to stretch your down payment to 20% rather than adding the responsibility of a piggyback loan. However, in the event you’re unable to make a significant down payment and avoiding PMI is a priority for you, this kind of loan could help.

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
  1. Federal Housing Finance Agency (FHFA), “FHFA Announces Conforming Loan Limits for 2022.” Accessed March 26, 2022.
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