If you’ve started looking into mortgage options, you’ve probably come across private mortgage insurance and realized it’s an extra cost most buyers would rather avoid. That’s where piggyback loans come in.
A piggyback loan is a strategy some homebuyers use to reduce upfront costs or skip PMI altogether. It’s not the right move for everyone, but in the right situation, it can save you money and give you more flexibility.
Let’s break down how it works and whether it’s worth considering.
What Is a Piggyback Loan?
A piggyback loan is when you take out two loans at the same time to buy a home instead of one large mortgage.
The idea is simple: instead of putting down 20% to avoid PMI, you split the financing into multiple pieces so your primary mortgage stays under that 80% threshold.
How a Piggyback Loan Works
You’ll have:
- A primary mortgage (typically 80% of the home’s price)
- A second loan (usually 10–15%)
- A down payment (often 5–10%)
Because your main loan stays at or below 80% loan-to-value (LTV), lenders don’t require PMI.
What Does 80/10/10 Mean?
The most common structure is called an 80/10/10 loan:
- 80% first mortgage
- 10% second mortgage
- 10% down payment
There are also variations, like 80/15/5, where you put less down but take on a larger second loan.
Why Homebuyers Use Piggyback Loans
Piggyback loans aren’t just a workaround. They’re a strategic tool for certain buyers.
Avoiding Private Mortgage Insurance (PMI)
This is the biggest draw. PMI can add hundreds to your monthly payment, and a piggyback loan helps you sidestep it completely.
Lowering Monthly Costs (Sometimes)
Depending on interest rates, the combined payment of two loans can be lower than paying PMI, especially over time.
Buying with Less Cash Upfront
If you don’t have a full 20% down payment, a piggyback loan can help you bridge the gap without waiting years to save more.
Staying Within Loan Limits
In higher-priced markets, splitting the loan can help you avoid a jumbo mortgage and stick with conforming loan limits.
Types of Piggyback Loans
There’s no one-size-fits-all structure, but these are the most common setups.
80/10/10 Loan
The classic option with a 10% down payment and a smaller second loan.
80/15/5 Loan
A lower down payment (5%) paired with a larger second mortgage.
Other Variations
Some lenders offer customized combinations depending on your financial profile and goals.
Pros and Cons of Piggyback Loans
Like any mortgage strategy, there are tradeoffs.
Advantages
- Avoid paying PMI
- Potential long-term savings
- More flexibility with your down payment
Disadvantages
- You’ll have two monthly payments
- The second loan often has a higher interest rate
- Qualification can be more complex
Piggyback Loan vs. PMI: Which Is Better?
This is where things get personal because the “better” option depends on your numbers.
Cost Comparison
PMI is typically added to your monthly payment and can last for years. A piggyback loan replaces PMI with a second loan, which may cost more or less depending on interest rates.
Flexibility and Risk
PMI can eventually be removed once you reach enough equity. A second mortgage, on the other hand, sticks around until it’s paid off or refinanced.
The best move? Run the numbers side by side.
Who Should Consider a Piggyback Loan?
Piggyback loans tend to work best for buyers who:
- Have strong credit
- Want to avoid PMI
- Are buying higher-priced homes
- Have steady income but not a full 20% saved
If that sounds like you, it’s definitely worth exploring.
How to Qualify for a Piggyback Loan
Because you’re taking on two loans, lenders will take a close look at your financial profile.
You’ll typically need:
- A solid credit score
- Stable income and employment
- A manageable debt-to-income (DTI) ratio
- Enough income to comfortably handle two payments
It’s a bit more involved than a standard mortgage, but doable for qualified buyers.
Common Mistakes to Avoid
Before jumping in, watch out for these common missteps:
- Underestimating your total monthly payment
- Skipping a full comparison between PMI and piggyback options
- Overextending your budget
- Not fully understanding the terms of the second loan
A little planning upfront can save you a lot of stress later.
Final Thoughts: Is a Piggyback Loan Right for You?
A piggyback loan can be a smart strategy especially if avoiding PMI is a priority. But it’s not always the cheapest or simplest option.
The key is understanding how the numbers work in your specific situation. For some buyers, it’s a great way to get into a home sooner. For others, a traditional mortgage with PMI might actually be the better move.
Compare Mortgage Options and Find the Best Fit
Thinking about using a piggyback loan? It’s worth getting expert insight before making a decision.
Connect with a trusted mortgage professional to compare loan structures, calculate your true monthly costs, and choose the option that makes the most sense for your budget and long-term goals.
