Piggy Back Loans
A piggyback loan, also known as a combo or concurrent second mortgage, is a creative financing strategy that involves taking out two separate loans on a single property at once.
There are many reasons why this could be a beneficial strategy for a borrower, but the main two reasons a piggyback loan can help someone achieve their goals is by using a 2nd lien, a borrower can avoid needing a jumbo loan that often have stricter qualification requirements. A piggyback loan can also be used to avoid private mortgage insurance.
A piggyback loan isn’t right for every scenario, so make sure to schedule a consultation if you think this is a strategy that would be a good option
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F. A. Q's
Frequently Asked Questions
Piggyback loans, also known as piggyback mortgages, can be a financial tool to consider when buying a home. They involve obtaining two mortgages at the same time: a first mortgage for the bulk of the purchase price and a second mortgage to cover the rest. Here are some frequently questions asked about Piggyback loans.
A Piggyback loan is a second mortgage taken out simultaneously with a primary mortgage that helps borrowers avoid private mortgage insurance (PMI). PMI is an additional fee imposed on conventional mortgages when the down payment is less than 20% of the home's value. By using a Piggyback loan, you can effectively reach the 20% threshold without requiring a large upfront down payment.
Piggyback loans combine two separate mortgages. The first mortgage typically covers 80% of the home's value, while the second mortgage (the "piggyback" loan) covers the remaining 10% to 20%. The second mortgage can be a Home Equity loan or a Home Equity Line of Credit (HELOC).
The two most common types of Piggyback loans are the 80-10-10 and the 80-15-5. In an 80-10-10 arrangement, the borrower puts down 10% of the home's purchase price, takes out a primary mortgage for 80%, and a Piggyback loan for the remaining 10%. Similarly, in an 80-15-5 arrangement, the borrower puts down 5%, takes out a primary mortgage for 80%, and a Piggyback loan for 15%.
Besides avoiding PMI, Piggyback loans can offer some additional advantages. They allow you to buy a more expensive home with a smaller down payment, and some offer flexible payment options like interest-only payments for the initial period.
Whether a Piggyback loan is the right choice for you depends on your individual financial status and goals. Consider your budget, risk tolerance, and long-term financial plans. Consult a mortgage professional to discuss your options and determine if a Piggyback loan can help you achieve your financial objectives.