Piggyback Loan

Full definition

A piggyback loan involves two mortgage loans originated simultaneously: a primary first mortgage (usually 80% of the purchase price) and a second mortgage (10%-20% of the purchase price). This combination avoids private mortgage insurance (PMI), which is required when a borrower puts less than 20% down on a conventional mortgage. Common piggyback structures: 80-10-10: 80% first mortgage, 10% second mortgage (often a HELOC or home equity loan), 10% buyer down payment. Total LTV = 90%, but the primary mortgage is at 80% so no PMI. 80-15-5: 80% first mortgage, 15% second, 5% down. Less common now but historically popular. Why borrowers use piggybacks: PMI on a conventional loan costs 0.5%-1.5% of the loan amount annually (for example, $1,000-$3,000/year on a $200,000 loan). A second mortgage at 7%-10% APR may be less expensive annually than PMI, especially if the second mortgage has a shorter term or can be paid off faster. How it relates to personal loans: Piggyback loans are mortgage products, not personal loans. However, borrowers sometimes confuse the two when considering home purchase financing options. A personal loan cannot be used as a down payment in most cases: conventional mortgages require that the down payment come from the borrower's own funds (not borrowed), and lenders verify the source of down payment funds. Using a personal loan as a down payment typically violates loan terms and is discoverable through credit report and bank statement review. Current availability: Piggyback loans are less common post-2008 than they were in the early 2000s, but they are available from portfolio lenders, credit unions, and some banks for qualified borrowers.

• HELOC (Home Equity Line of Credit)
• Home equity loan
• Lien