For buyers aiming to reduce upfront costs or avoid private mortgage insurance, traditional financing options may not suffice. In such cases, a piggyback loan can offer an alternative route to buying your dream home.
This need has become more pronounced as affordability pressures remain.
In April 2025, the median sales price for new homes in the U.S. reached $407,200, reflecting a 2% decrease from the previous year. Despite this slight dip, affordability challenges persist due to elevated mortgage rates and other economic factors, like inflation, tariffs, and recession.
What Is a Piggyback Loan?
A piggyback loan is any additional mortgage or loan secured by the same property alongside the primary mortgage.
This loan is structured separately but applies to the same home purchase, allowing the borrower to carry multiple debts in one collateral.
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How Does a Piggyback Loan Work?
A piggyback loan splits the financing into two parts at the time of purchase.
The primary loan covers most of the home’s price, while a smaller second loan helps fund the down payment.
Both loans close together are secured by the same property.
Piggyback Loan Structures
Lenders offer several piggyback loan structures to match different down payment capabilities.
Each format determines how much the borrower provides in cash, how much is financed by the first mortgage, and how much is covered by the second loan.
80/20 Piggyback Loan Structure
An 80/20 structure includes a first mortgage for 80% of the home’s price and a second mortgage for the remaining 20%. No cash down payment is needed.
For example:
- Purchase price: $250,000
- First mortgage: $200,000 (80%)
- Second mortgage: $50,000 (20%)
Some lenders also allow up to three percent in seller-paid assistance for closing costs. On a $250,000 purchase, this could mean up to $7,500 in additional covered expenses.
80/10/10 Piggyback Loan Structure
The 80/10/10 format involves a first mortgage for 80%, a second for 10%, and a 10% down payment from the borrower. Combined, the loans and cash equal 20% of the home’s value, meeting the typical equity threshold to avoid private mortgage insurance (PMI).
Example:
- Purchase price: $400,000
- First mortgage: $320,000 (80%)
- Second mortgage: $40,000 (10%)
- Down payment: $40,000 (10%)
80/15/5 Piggyback Loan Structure
The 80/15/5 structure allows the buyer to contribute just 5% instead of 10% in cash. The second mortgage provides the other 15% needed to reach the 20% mark.
Example:
- Purchase price: $300,000
- First mortgage: $240,000 (80%)
- Second mortgage: $45,000 (15%)
- Down payment: $15,000 (5%)
75/15/10 Piggyback Loan (For Condos)
Common among condo buyers, the 75/15/10 uses a first loan amount covering 75%, a second loan covering 15%, and a 10% down payment. Some condo projects may require different equity splits due to building-specific financing limits.
Example:
- Purchase price: $500,000
- First mortgage: $375,000 (75%)
- Second mortgage: $75,000 (15%)
- Down payment: $50,000 (10%)
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Types of Mortgages Used in Piggyback Loans
The most common types of piggyback loans include:
HELOC
A home equity line of credit (HELOC) provides a credit limit that the borrower can draw from as needed, similar to a credit card.
It’s secured by the property and typically comes with a variable interest rate. Payments may start as interest-only, followed by full principal and interest later.
This option offers flexibility but can become unpredictable if rates rise.
Home Equity Loan
A home equity loan, often called a second mortgage, delivers a lump sum upfront with fixed monthly payments.
Unlike a HELOC, this loan has a set repayment schedule and a fixed interest rate. It’s suited for borrowers who prefer predictable costs and a locked-in rate over time.
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Piggyback Loan Requirements
Borrowers must meet stricter qualifications when applying for a piggyback loan.
Since there are two separate mortgages, lenders assess the applicant’s full financial profile to manage the added risk of dual repayment obligations.
High Credit Score
Lenders typically require strong credit to approve a piggyback loan because you’ll take on two simultaneous debts.
They generally require a FICO credit score of 700 and above. This score ensures that you have a consistent repayment track record and can manage additional financial obligations.
Some lenders may also accept scores in the mid-600s, but this usually comes with higher rates or more restrictive loan terms.
Low Debt-to-Income Ratio (DTI)
Beyond credit, lenders evaluate how much of your income already goes toward existing debts.
This figure, called the debt-to-income ratio, helps assess whether you can realistically take on two mortgage payments.
Lenders generally prefer a total DTI under 36%. This percentage includes your projected first and second mortgage payments, plus other obligations like credit cards and student debt.
If your DTI is too high, lenders may view you as a default risk.
Stable Income and Employment History
Inconsistent income, short-term employment, or paycheck-to-paycheck living can disqualify a borrower from getting approved.
This is why reliable income reassures lenders that you can support both loans without interruption.
Most lenders want to see a two-year employment history in the same field, with documented proof through W-2s, tax returns, and recent pay stubs.
If you’re self-employed and have side hustles, expect to provide extra documentation, such as business returns and current financial statements.
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Why Use a Piggyback Loan?
Borrowers use piggyback loans as a strategy because of the following benefits:
Lower Down Payment
If you want to lower your bills, having 20% for a down payment can delay homeownership for years. A piggyback loan lowers this barrier by covering part of the upfront cost through the second loan.
This allows buyers to move forward with less cash while still meeting lender equity requirements.
For instance, instead of putting down $80,000 on a $400,000 home, you could contribute $40,000 in cash and use a $40,000 second mortgage to reach the needed 20%.
No Private Mortgage Insurance (PMI)
Lenders require PMI when down payments are under 20%. This insurance protects them in case borrowers default on their mortgage.
As a result, this cost adds a monthly fee that doesn’t go toward equity or interest. A piggyback loan eliminates this requirement by using the second loan to fill the equity gap, avoiding the additional expense entirely.
Helps You Preserve Cash on Hand
Some buyers choose to keep more cash reserves after closing. This liquidity may be crucial for repairs, home improvements, or as a safety buffer.
With a piggyback loan, you can keep more funds accessible rather than locking them into a single large down payment.
Avoid Jumbo Loans
A jumbo loan exceeds conforming limits set by federal housing agencies. These loans usually have stricter underwriting rules, higher credit requirements, and less favorable rates.
In 2025, the conforming loan limit is $806,500 in most areas.
A piggyback loan can split the total financing into two smaller loans, allowing borrowers to stay under the cap and avoid the burden of jumbo qualification.
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What Are the Limitations of a Piggyback Loan?
While a piggyback loan can reduce upfront costs and eliminate PMI, it may introduce the following financial and logistical challenges.
Higher Interest Rates
Second mortgages generally have higher rates than primary home loans. These rates are particularly high for variable-rate products like HELOCs.
Over time, the interest costs from the second loan can erode some of your savings from avoiding PMI.
Two Loan Payments
Piggyback loan setups involve two separate monthly payments. Since you must pay both on time to avoid default, budgeting can become difficult if income changes. This financial strain can accumulate compared to a single-loan arrangement.
Double Closing Costs
Primary home loans and second mortgages carry their own closing fees, such as application charges, title costs, and lender-specific expenses.
These costs can increase quickly and offset the savings associated with skipping mortgage insurance.
Complex Qualification
Borrowers must qualify for two loans at once, which means more paperwork, additional credit checks, and dual underwriting reviews. Lenders may also request extra documentation or clarification before proceeding.
Loan Management Can Be Demanding
Managing two loans means tracking separate due dates, terms, and balances. It also adds complexity if you want to refinance, sell the home, or adjust payment schedules in the future.
Refinancing Can Be More Challenging
Borrowers usually need approval from both loan holders to refinance. Some lenders may not agree to the terms. At the same time, combining the loans can trigger new fees or less favorable rates.
Not Available in All Lenders
Some lenders don’t offer second mortgage products or piggyback loan structures. This limits your ability to compare offers and may require you to work with two separate institutions, each with its own process and timeline.
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How To Get a Piggyback Loan
Applying for a piggyback loan involves more coordination than a standard mortgage. Since it requires approval on two separate mortgages, the process demands early planning, responsive communication, and detailed financial records.
Research and Compare Second Mortgage Lenders
Start by identifying lenders that offer both primary and second mortgage options. Because not all financial institutions provide piggyback loan products, it’s vital to confirm availability.
Compare interest rates, fees, repayment terms, and credit requirements across multiple lenders. Then, consider lender responsiveness and how well they handle complex loan structures.
Apply for Primary and Secondary Mortgages
After choosing a piggyback loan lender, prepare to provide complete documentation, including income verification, bank statements, tax returns, and credit reports.
Afterward, submit applications for both loans, usually at the same time.
Make sure each lender understands that you’ll use the loans together to complete a single home purchase.
Respond to Lender Questions
During underwriting, both lenders may request additional details. Be ready to explain your income sources, job stability, and any fluctuations in your financial history.
Lenders may also ask about your intended use of the home and your rationale for using a piggyback structure instead of a standard down payment.
Prepare for Closing
Finally, coordinate timelines to ensure both loans close together. Review each closing disclosure, including fees, rates, and loan terms, for accuracy.
You’ll need to sign two sets of agreements and be ready to pay separate closing costs. If the structure includes a down payment, ensure funds are available before the scheduled date.
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Alternatives To a Piggyback Loan
If piggyback structures aren’t suitable for your mortgage needs, the following alternatives may provide terms that align with your objectives:
Federal Loans
Federal loan programs can make homeownership more accessible by offering flexible down payment terms and relaxed credit requirements.
These loans are backed by government agencies but issued by private lenders.
Also, they include options such as subsidized and unsubsidized loans, which are part of educational or government-assisted borrowing programs.
FHA Loans
FHA loans are insured by the Federal Housing Administration (FHA). They are designed for borrowers with limited savings or credit scores below conventional thresholds.
You can qualify with as little as 3.5% down and a score in the 580 range. However, FHA loans require mortgage insurance, but the lower entry point makes them a frequent choice for first-time homebuyer loan recipients.
VA Loans
VA loans are available to veterans, active service members, and eligible surviving spouses. Backed by the Department of Veterans Affairs (VA), these loans require no down payment and don’t include monthly mortgage insurance.
Additionally, they offer competitive interest rates and flexible terms for qualified applicants.
USDA Loans
USDA loans support low-income buyers in eligible rural and suburban areas. They offer 100% financing with no down payment required. Income limits and geographic restrictions apply, but this loan can be an ideal option for buyers outside metro centers.
Bridge Loans
Bridge loans are a short-term financing options that help buyers “bridge” the gap between purchasing a new home and selling their current one.
It provides immediate cash flow, allowing you to make a down payment on a new property before finalizing the sale of your existing home.
However, they’re best suited for borrowers with strong credit, substantial home equity, and a clear plan to repay the loan quickly.
Personal Loans
Personal loans offer a flexible financing option for various homeownership-related expenses, including moving costs, minor renovations, and upfront costs like inspections and appraisals.
These loans are typically unsecured, meaning they don’t require collateral such as a home or vehicle.
They can be beneficial for borrowers who don’t yet qualify for a mortgage or who need a financial cushion during the buying process.
Conventional Loans
Conventional mortgages are issued through private lenders and are not backed by government agencies. To avoid PMI, borrowers usually must put down at least 20%.
However, many lenders offer 3% or 5% down options with mortgage insurance. Some conventional loans are also backed by Fannie Mae or Freddie Mac, which offer reduced PMI costs compared to FHA.
On the other hand, auto loans typically differ in structure but may influence credit scoring factors relevant to conventional mortgage eligibility.
Down Payment Assistance Programs
Many cities, states, and nonprofit organizations offer financial assistance to help cover down payments and closing costs.
These programs are ideal for first-time buyers or households earning below local income limits.
Assistance may come in the form of a forgivable loan, deferred-payment loan, or grant.
Forgivable Loan
A forgivable loan covers part of your down payment or closing costs but doesn’t require repayment if you meet specific terms.
These terms usually include staying in the home for a set number of years, commonly five to ten. If you sell or refinance before this period ends, you may need to repay the full amount or a prorated portion.
Some housing agencies also automatically forgive the loan after the residency period without any further action required by the homeowner.
Unlike secured loans, forgivable options often lack physical collateral, making them more similar in behavior to unsecured loans, depending on how repayment is structured.
Deferred-Payment Loan
A deferred-payment loan provides upfront funding without requiring monthly payments during the life of the first mortgage. Instead, repayment is postponed until you sell, refinance, or pay off the home loan.
These loans typically carry no interest, and because repayment is delayed, they help reduce early financial pressure.
However, they still count as debt and may affect eligibility when applying for a primary mortgage.
Grants
Grants provide funds that don’t need to be repaid, making them one of the most affordable forms of homebuyer aid.
Some programs labeled as grants may create a second lien, so it’s important to review the terms carefully before accepting funds.
You can get down payment grants from institutions like Amaris Bank and government agencies.
Lender-Paid Mortgage Insurance (LMPI)
LPMI allows borrowers to avoid monthly PMI by having the lender cover the insurance premium. In exchange, the lender charges a higher interest rate over the life of the loan.
This option can lower your monthly out-of-pocket cost, but it may increase the total interest paid long term.
For example, with a 12% down payment on a $250,000 loan, LPMI may raise the interest rate by 0.25% to 0.5%, depending on the lender.
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Conclusion
Piggyback mortgages are worth considering if you want to avoid paying PMI and reduce upfront cash requirements. With these structures, you can even avoid jumbo loans.
When used under the right conditions, it can help make mortgage financing more flexible.
However, you must remember that the benefits depend on your credit profile, loan terms, and how long you plan to live in the property.
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