Pros & Cons of Piggyback Loans

Many home buyers believe they need to put 20 percent down for a house. However, many home buyers end up putting down less than 20 percent. In fact, NAR’s 2025 Profile of Home Buyers and Sellers found a median down payment of 19% for all buyers. The median was 10% for first-time buyers and 23% for repeat buyers. This guide covers the pros and cons of piggyback loans, one way to buy with less than 20 percent down.

Some down payments are even lower than 10 percent. FHA loans require a downpayment of just 3.5% with a credit score of 580 or higher. Conventional loans can go as low as just 3% down. However, a conventional loan with a downpayment of less than 20 percent generally requires private mortgage insurance (PMI).

Save money by avoiding PMI

PMI can add quite a hefty monthly expense, sometimes hundreds of dollars, to your monthly mortgage payment.

Some borrowers choose an option that avoids both PMI and a downpayment of 20 percent or more. Many people call this mortgage a piggyback loan, or sometimes an 80-10-10 loan.

Say you plan on putting down between 5-15 percent on your house. In that case, you can take out two loans for the rest of the purchase price so you can avoid the PMI. The first loan is the bigger one. It is usually a traditional loan with a fixed rate and an 80 percent loan-to-value ratio (LTV).

The second loan is a home equity loan or home equity line of credit (HELOC). You sign off on it at the same time you get your main mortgage. This loan makes up 5-15 percent of the purchase price. So, if you want to make a downpayment of 10 percent, your second loan would be for 10 percent of your home’s value.

Typically, the main mortgage has a lower interest rate than the second mortgage. A HELOC usually has an adjustable rate, while a home equity loan usually has a fixed rate.

Piggyback loans are one way to avoid PMI. They appeal especially to first-time home buyers who can’t afford a 20 percent downpayment. But before signing up for a piggyback loan, understand the pros and cons.

Pros and cons of piggyback loans

Pros

• Avoid PMI. This is one of the main reasons home buyers will opt for a piggyback loan over other options. Many other low-down-payment options, such as FHA loans, require PMI or similar types of mortgage insurance.
• Can help you keep your first mortgage within the conforming loan limit and avoid getting a jumbo loan.
• Allows you to spend less of your own money at the closing. You may have the money for a 20 percent down payment. Even so, it’s always nice to have some set aside for emergencies and home improvement.
• Interest paid on a piggyback loan may be tax deductible if you itemize deductions, within IRS limits.
• Say you know you won’t be staying in a certain area for a long time. If so, this loan might be the way to go. You may sell the house before an adjustable rate on your second mortgage goes up.

Cons

• The cost of the second mortgage could be much higher than the first mortgage because of the interest rate. Lenders take a bigger risk on the second mortgage, so the cost can reflect that risk.
• Taking out that second loan just might limit your borrowing capacity against your home in the future.
• Similar to your first mortgage, second mortgages will require closing costs.
• You’ll have two mortgage payments per month, and it could total to more than the costs added by PMI.

Weigh the cons of piggyback loans against PMI

Before taking out a piggyback mortgage, make sure you have all the facts. Compare the costs of such a loan with paying the PMI or getting a lender-paid mortgage insurance. Ask your lender a lot of questions. Get a clear picture of what it all means to your budget and your future equity.