Piggyback Loan

By
Real Estate Agent with Seven Gables Real Estate

The Piggyback Loan is another loan that offers a low down payment as well as a way to avoid PMI (private mortgage insurance). It can be used to finance 80% of the home's purchase price. For instance, if a homebuyer only has enough cash for a 5% down payment it would look like this. 80/15/5. The "80" refers to 80% of the purchase price. The "15" is the second mortgage which finances 15% of the purchase price. The "5" is the down payment. Another one you could do would be 80/10/10.

 

Some lenders will allow 80/20 where the second mortgage covers the rest of the purchase price with no down payment needed.

 

Cons: The second mortgage is usually financed at a higher interest rate than the first. Second mortgages have a shorter term then firsts and are usually confined to primary residences and they are also limited to amounts no higher than $100,000. However some lenders will allow more.

 

 

Pros: This is another loan option available if you don't have 20% down for a conventional loan and want to avoid PMI. Sometimes, the second loan can be structured in a way that gives the homeowner practical use. They may also be structured to allow interest-only payments. This means that for a specified period of time, you only have to pay the interest, although you can add as much principal on top of that as you wish. It gives homeowners the added flexibility to do what they want with there money.

 

With so many loan options available and very low interest rates, now may be your best chance to purchase a home. 

 

Keep in mind, not all lenders are the same. Make sure to shop around a bit to find a lender you feel comfortable with and offers the type of financing you need. It's a good idea to ask friends, family members, and your Real Estate agent for referrals.  

Comments (1)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Ryan - Thank you for the detailed quality information on piggyback loan. Excellent blog.

Mar 29, 2011 05:05 PM