Piggyback Loan: What are they and how do they work?

What is a piggyback loan?

Also known as 80/10/10 or combination mortgage, Piggyback Loans get two loans at once to buy one big loan and a second small loan. The second small loan essentially funds the down payment.

As a result, piggyback loans reduce the need to pay Private Mortgage Insurance (PMI). Normally, if you can’t come up with at least 20% cash, you’ll need to pay this monthly fee on a traditional mortgage.

Furthermore, piggyback loans are Jumbo Loan. Jumbo Loans are mortgages with an amount exceeding the federal limit: $806,500 in most countries in 2025. If you’re focusing on expensive real estate and need to borrow more than your local “compliant loan limit,” you’ll likely need a jumbo loan. However, by separating funding into two (smaller) mortgages, you can avoid falling into the “jumbo” category of loan size.

How do piggyback mortgages work?

In the 80/10/10 mortgage setup, the first mortgage is 80% of the property’s value, and the second piggyback is 10%. The remaining 10 represents a 10% down payment that contributes to the purchase of a home.

How is a piggyback loan structured?

80/10/10 is a typical piggyback structure, but that’s not all. Lenders may also provide an 80/15/5 arrangement, says CFA Greg McBride, chief financial analyst at Bankrates. For example, a $400,000 loan will include a $320,000 mortgage, a $40,000 second mortgage and a $40,000 down payment on 10/80. Switching to 15/5/80, your second mortgage is $60,000 and your down payment is $20,000.

Piggyback Loan Rate

Piggyback mortgages come in a variety of forms, including home equity loans, home equity and credit lines. The average fees for these types of loans as of May 2025 are as follows:

• Home Equity Loan Fees: 8.23%
• Home Equity Credit Line: 8.20%

Compared to traditional 30-year mortgages with an average fee of around 6.95% as of May 2025, the above piggyback loan types have higher fees.

Types of piggyback mortgages

There are many different types of piggyback loans, but some of them have been heard before:

• Home Equity Loan: Home Equity Loan It is usually a lump sum payment to help existing homeowners take advantage of the equity they have built into their homes. Fairness is the amount of a home that is completely free to exempt from your mortgage balance. For piggyback mortgages, your home equity loan is issued at the same time as the mortgage you are taking to buy the home. A home equity loan will become the second mortgage (pork to the first mortgage), and the funds will be used to cover a portion of the home purchase.
• Home Equity Credit Line: a Home Equity Credit Line When used as a piggyback or second mortgage, it works similarly to a home equity loan. If you open a HELOC at the same time as your mortgage, you will purchase a house. Next, use HELOC funds to cover some of your home purchases.
• Down payment mortgage: Down payment mortgages have a slightly similar function to piggyback mortgages. This is a loan allocated for all or part of the down payment. It is aimed at home buyers who are unable to cut their cash by 20% towards home buying. Usually, this type of loan comes from formal Down payment support program Provided through the state Housing Finance Bureau. If so, it’s often reasonable interest rateand may be forgiven in a few years.

Pros and Cons of 10/10/80 Loan

10/10/80 Benefits of a home loan

• There is no PMI. The main advantages of piggyback loans are: Throw your private mortgage insurance. For traditional loan borrowers who have dropped 3.5%, the average annual PMI premium ranges from 0.46% to 1.5% of the loan amount, depending on their credit score. Urban Research Institute. With a piggyback loan you can get out of these insurance payments without coughing 20% ​​in cash or looking for a smaller, cheaper home.
• There are no mambo jumbos. Because they are high-risk and non-conforming loans, jumbo loans usually require a higher credit score, a higher down payment and ample cash reserves. If piggyback arrangements help maintain funding within conformance limits, you don’t have to worry about jumbo’s stricter qualifications.
• There’s little money. With a piggyback loan, you can donate far less cash than usual in the standard 80/10/10 loan scenario. Only 10% of the purchase price. Some lenders can even get it at 5% of the cost (80/15/5 piggyback).

10/10/80 Cons of a mortgage

• Your payments may change. Second piggyback loans usually have higher interest rates and are usually fluctuating, says McBride. So, when interest rates rise, you’ll end up paying more.
• There is a closure cost of 2 sets. When you take out your traditional second mortgage, you will have two bills for closing costs. It can be summed up and eats up potential savings by avoiding PMI.
• There may be problems with refinancing. If the loan is made through two different lenders, refinancing the road may not be an easy process.

Piggyback Mortgage Requirements

Piggyback loans can help you avoid some of the requirements for a jumbo loan, but they are not always easy to qualify. The fact that you fund this much of your home purchase allows you to raise a red flag with your lender.

Expect to scrutinise your personal finances to ensure you are actually able to pay back both loans. Some of the requirements for this type of loan are as follows:

• Strong credit score: You need a credit score of about 700 or more, but some lenders may offer them to people with a score of 680.
• Lower debt to income ratio: It’s wise to reduce you Debt Income (DTI) Ratio As much as possible before applying. You should aim for a DTI of 36% or less, including repayment of both loans. Some lenders may be willing to go a little higher than that.
• Stable income and employment history: You need a stable income and employment history that can be verified.

How to get a piggyback loan

A piggyback strategy means a little more work and a degree of difficulty. After all, you will need to apply for two loans rather than one and close it. Here’s a short breakdown on how it works:

1. We’ll investigate the second mortgage lender. Using a piggyback strategy means that homework is required not only for the main lender, but also for the second mortgage lender. compare Second mortgage feeThere are also requirements for credit scores, loan and value restrictions, and debt to income ratios.
2. First apply for a major mortgage, then a second mortgage. While your first mortgage is your priority, you essentially apply for both loans at the same time.
3. Answer questions from lenders. You may need to provide additional documentation. To keep the process running smoothly, respond promptly to your inquiries.

Piggyback Loan Alternatives

Piggyback mortgages were more common 10-20 years ago, before many low-down payment mortgage programs became mainstream, says McBride. If you’re highlighting that 20% down payment, First Home Buyer Loan Down payment assistance programs can help you move into your home with less advances without adding a layer of piggyback loans. Some options include:

• I had a loan – With FHA loans backed by the Federal Housing Administration, you can reduce your home purchase by just 3.5%. You can also qualify for sub-par credits on this loan. This program requires a minimum credit score of 580 for a 3.5% down payment. If your credit score is between 500 and 579, you will need to lower it by 10%.
• Traditional 97 – Two government-sponsored companies, Fannie Mae and Freddie Mac, offer this Types of mortgages. Available for just 3% down.
• appear – If you are serving in the military or actively employed, you are eligible for a loan backed by the U.S. Department of Veterans Affairs and you do not need to spend any money to get it.

A low-down payment program allows you to write smaller checks, but some lenders may need to go back to school. For example, Bank of America’s low-down payment loan program stipulates that borrowers may need to complete home buyer education courses, as sponsored by many countries. HFA Loan.

Piggyback Strategy for Current Homeowners

If you are trying to sell your current home while buying another home, you can try a very similar strategy with a piggyback loan. Instead of getting two mortgages on a new property, you can take out the mortgage that your current home has protected and cover all or part of the down payment of your new home. Once the sale is made, you can use your revenue to repay your home-based collateral loan.

There are several types of funding that can be used to do this, including this Home Equity Loan Or Helock.

For both Home Equity Loans and HELOCs, you must have paid or effectively paid the mortgage in your current home. Home’s current value.

Additional Reports by Mia Taylor