Piggyback 80 10 10 Loans Will Save You Money in 2020

80 10 10 Loans for Today’s Home Buyer

An 80 10 10 loan is a mortgage option in which a home buyer receives a first and second mortgage simultaneously, covering 90% of the home’s purchase price. The buyer puts just 10% down. This loan type is also known as a piggyback mortgage. It is popular because it helps buyers avoid private mortgage insurance while making a down payment of less than 20%.

Are 80 10 10 Loans Available?

Most lenders offer piggyback financing in 2020.

Lenders have always offered the first mortgage — the 80% portion of the home’s purchase price. In the past, it was challenging to find a lender for the 10% second mortgage.

That is no longer the case. Due to extreme popularity of the program, most lenders have created their own second mortgage program or have created relationships with external companies to secure second mortgage financing for the home buyer — making it one seamless transaction as far as the buyer is concerned.

How Do These Loans Work?

An 80 10 10 or “piggyback” loan describes two loans that are opened simultaneously, usually to purchase a home. One loan “piggybacks” on top of another to cover a bigger percentage of the home’s purchase price.

The first mortgage is for 80% of the purchase price. Then a second loan is opened at for a value of 10% of the price. The second loan is often called a second mortgage, home equity line of credit (HELOC), or home equity loan.

The borrower makes a down payment for the remaining 10% out of their own funds.

There are other types of piggyback mortgages besides 80/10/10s, such as an 80/5/15, and 80/15/5. The second number always describes the second mortgage, and the third number describes the down payment.

How do Piggyback Loans Eliminate PMI?

The first and second mortgage combination helps the buyer to avoid private mortgage insurance (PMI) because the lender considers it a 20% down loan. PMI is required for most conventional loans with less than a 20% down.

Therein lies the PMI loophole. Lenders “count” the second mortgage as part of your down payment. So with 10% down cash plus a 10% second mortgage you have your 20% down without covering the whole thing out-of-pocket.

Is an 80 10 10 Less Expensive than FHA?

The minimum down payment for an FHA mortgage just 3.5%. However, buyers can make a bigger down payment if they wish.

If a buyer wants to put 10% down, should they opt for FHA?

The buyer should consider FHA’s mortgage insurance premium (MIP), which is equal to 0.80% of the loan amount (if making a 10% down payment). For a $250,000 loan amount, that’s $167 per month.

The MIP is required for the first 11 years of the loan with a down payment of 10%. With a smaller down payment, MIP is payable for the life of the loan.

In addition to this monthly mortgage insurance cost, FHA charges a one-time upfront mortgage insurance premium of 1.75% of the loan amount. These costs can add up and make a piggyback mortgage considerably cheaper than FHA.

Piggyback Loans Vs. PMI Vs. FHA Loans

In a three-way match up, which mortgage product comes out on top? Let’s look at an example of a home purchase of $250,000 with 10% down.

*Rates are only examples and are not taken from current rate sheets. Your rate may be higher or lower. Click here to request current rates.

In this scenario the piggyback mortgage saves the buyer $113 per month compared to getting one 90% loan with PMI and $126 per month compared to FHA.

So, Why Doesn’t Everyone do a Piggyback Loan?

In the scenario above, the piggyback mortgage is the clear winner in terms of monthly payments. However, this loan program may not be for everyone. There are a few factors to bear in mind:

• Piggyback mortgages often require a high credit score. You probably need a 680 score to qualify, but that will vary with each lender. Borrowers with a less-than-perfect credit score, an irregular income history or who are using a gift for the 10% down payment will probably need FHA.
• Piggyback loans may be harder to refinance at a later date. The second mortgage will need to be paid off or subordinated. To subordinate the second mortgage, the lender will need to agree to make their loan second in importance behind the new first mortgage. In some cases, this agreement can be hard to get.
• There is no streamline refinance option for piggyback mortgages. Expect a longer refinance times than with an FHA refinance.
• The second mortgage often has a variable rate. In this scenario, the second mortgage is 1.99% above the prime rate (3.25% prime rate was used in this scenario). If the prime rate were to go up, so would the second mortgage rate and payment.
• The second mortgage is often referred to as a HELOC, or home equity line of credit. HELOC second mortgages often only require interest to be paid each month. So in five or ten years, the balance will be the same if the borrower does not make additional principal payments.
• You should be prepared to supply documentation for two separate loans as the 80% first mortgage and 10% second mortgage are often placed with two separate banks, each with their own rules.

And the Winner is…

Each home buyer needs to make their own decision which loan type is best based on factors like future financial goals, credit score, and their desired down payment.

For many borrowers a piggyback loan is the right choice. And with loosening rules around, more home buyers than ever are qualifying.

You could be just moments away from a pre-approval to buy your home.

All scenarios based on $250,000 purchase price and value, 10% down payment, 740 credit score, no HOA dues, and property in WA. 30 year fixed rate 1^st mortgage with principal and interest payment, 30 year HELOC 2^nd mortgage with interest-only payment, $5000 in finance charges on the first mortgage, and $1000 in finance charges on the 2^nd mortgage. Mortgage payments rounded to the nearest dollar. Rates based on real-time available rates as of 2/21/13.