Key Takeaways
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Piggyback loans eliminate PMI by using two mortgages instead of one.
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You can buy with as little as 10% down while avoiding jumbo loan limits.
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Strong credit and low DTI are key to qualifying.
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Alternatives like FHA or VA loans may better suit buyers with smaller savings.
Buying a home often means finding a way to afford the down payment without draining your savings. When you put down less than 20%, most lenders require private mortgage insurance (PMI) — an extra cost that doesn’t build equity. But there’s a lesser-known strategy that helps you skip PMI and lower your upfront costs: the piggyback loan, also known as an 80/10/10 loan.
This two-loan mortgage structure can help buyers avoid PMI, stay within conforming loan limits, and reduce overall borrowing costs. Here’s how it works and when it might make sense for your situation.
What Is a Piggyback Loan?
A piggyback loan (or 80/10/10 loan) involves taking out two mortgages at the same time to finance your home purchase:
| Financing Breakdown | Percentage of Home Price | Loan Type |
| First Mortgage | 80% | Primary Loan |
| Second Mortgage | 10% | Home Equity Loan or HELOC |
| Down Payment | 10% | Buyer’s Contribution |
By structuring your financing this way, you can avoid PMI because you’re borrowing only 80% of the property’s value on your main mortgage. This approach also helps you avoid a jumbo loan, which typically has stricter qualification requirements and higher interest rates.
How a Piggyback Mortgage Works
In the standard 80/10/10 loan, your first mortgage covers 80% of the home’s purchase price, your second “piggyback” loan covers 10%, and you contribute a 10% down payment.
Some lenders offer variations, like 80/15/5, which reduces your down payment to just 5%. The second loan can be structured as a fixed-rate home equity loan or a variable-rate HELOC.
Because the second loan often carries a higher rate, it’s essential to understand both loans before finalizing your decision.
Benefits and Drawbacks of Piggyback Loans
Piggyback loans offer major benefits for buyers who qualify — but they’re not right for everyone.
Pros:
- Avoid PMI: Eliminate monthly insurance costs.
- Lower down payment: Buy with as little as 10% down.
- Stay within conforming limits: Avoid jumbo loan qualifications.
- Potentially lower long-term costs: Two smaller loans can sometimes be cheaper than one large one.
Cons:
- Two monthly payments: You’ll pay both lenders each month.
- Higher second-loan rate: That smaller loan often carries a higher or variable rate.
- Extra fees: Expect additional closing costs for the second loan.
- Refinance challenges: Managing two loans can make refinancing later more complex.
Who Qualifies for a Piggyback Loan?
Because a piggyback loan involves two mortgages, lenders look closely at your financial stability. To qualify, most borrowers need:
- A credit score of at least 700 (some lenders may go as low as 680).
- A debt-to-income ratio (DTI) under 36%, including both loans.
- Consistent income and verifiable employment.
If you meet these standards, this loan type can be an excellent way to save on PMI and stay within conforming limits.
Alternatives to a Piggyback Loan
If you don’t qualify for a piggyback mortgage, consider these low down payment loan programs instead:
- FHA Loan: Backed by the Federal Housing Administration; requires only 3.5% down.
- Conventional 97 Loan: A 3% down option from Fannie Mae or Freddie Mac.
- VA Loan: Offers 0% down and no PMI for eligible veterans and active-duty members.
These loans make homeownership accessible but may include mortgage insurance or additional fees.
Using a Piggyback Strategy as a Current Homeowner
If you already own a home, you can use a home equity loan or HELOC from your current property to fund the down payment on your next home. Once your existing home sells, you can use the proceeds to pay off that loan.
This approach works like a short-term piggyback loan and helps bridge the gap between buying and selling, especially for move-up buyers navigating tight timelines.
Is a Piggyback Loan Right for You?
A piggyback mortgage can help you avoid PMI, reduce your down payment, and stay within conforming limits — but it’s not ideal for every borrower. You’ll need strong credit, steady income, and manageable debt to qualify.
Before choosing, compare how this loan stacks up against FHA or VA programs to see which fits your financial goals best. A mortgage professional can help you evaluate your options and maximize your savings.
FAQs About Piggyback Loans
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