Summary

A piggyback loan, also known as an 80-10-10 loan, enables homebuyers to secure two mortgages that cover 90% of the purchase price, allowing for a 10% down payment. This loan structure helps borrowers avoid private mortgage insurance (PMI) and provides flexibility when purchasing a home. While not as common after the housing crisis, piggyback loans have gained popularity again as an alternative to traditional mortgage financing.

✨ How Does an 80-10-10 Mortgage Work?

An 80-10-10 piggyback loan consists of two mortgages and a down payment:

• First mortgage: 80% of the home's price
• Second mortgage: 10% of the home's price
• Down payment: 10% of the home's price

The most common structure is 80-10-10, but other variations exist, such as 75-15-10, which is sometimes used for condominiums. These loans can offer lower interest rates and better financial options for homebuyers.

Takeaways:

• An 80-10-10 loan consists of two separate mortgages.

• The primary loan covers 80% of the home’s value, the second covers 10%, and the down payment makes up the remaining 10%.

• Variations such as 75-15-10 can apply in specific situations.

Key Terms

• Piggyback Loan: A financing strategy where two mortgages cover most of the home’s value, reducing the need for PMI.

• Jumbo Loan: A mortgage that exceeds conventional loan limits, often requiring stricter approval standards.

• HELOC (Home Equity Line of Credit): A variable-rate loan secured by home equity, often used as the second mortgage in an 80-10-10 structure.

🌟 Why Get an 80-10-10 Loan?

There are two primary reasons why homebuyers opt for an 80-10-10 piggyback loan: to avoid PMI and to qualify for a conforming loan instead of a jumbo mortgage.

Takeaways:

• Piggyback loans help borrowers avoid private mortgage insurance (PMI).

• They allow buyers to bypass the stricter requirements of jumbo mortgages.

• The second mortgage in an 80-10-10 setup is often a HELOC, which may have a variable interest rate.

Key Terms

• Private Mortgage Insurance (PMI): A type of insurance required when a borrower’s down payment is less than 20% of the home's price.

• Conforming Loan: A mortgage that meets federal guidelines, typically allowing for lower interest rates and easier approval.

✔️ Piggyback Loan Pros and Cons

Piggyback loans offer several advantages but also come with some drawbacks.

Takeaways:

• Pros: Avoids PMI, allows access to conforming loans, and offers better mortgage rates for high-value homes.

• Cons: Requires approval for two loans, may complicate refinancing, and HELOC interest rates can fluctuate.

Key Terms

• Equity: The difference between the home’s market value and the mortgage balance.

• Refinancing: The process of replacing an existing loan with a new loan to get better terms or interest rates.

Conclusion

Piggyback loans, particularly 80-10-10 structures, provide an alternative route to homeownership that helps borrowers avoid PMI, secure better loan terms, and work around jumbo mortgage requirements. While they offer significant benefits, potential buyers should weigh the additional complexity of managing two loans against the financial advantages.