I’m excited to announce that at First Home Mortgage in Richmond, VA, we have added an 80-15-5 mortgage loan to our other piggyback loan products. This product is a great option for borrowers looking to avoid private mortgage insurance or keep their loan amounts under conforming limits as jumbo mortgage rates are sometimes higher than conforming rates and jumbo mortgage guidelines can be more difficult to satisfy.
What Is a Piggyback Mortgage?
A piggyback mortgage is a combination of two loans. The second loan is taken out at the same time as the first during a purchase or refinance. An 80-15-5 means the first mortgage is for 80% of the purchase price and the second mortgage is for 15% of the purchase price, leaving the borrower with a down payment of only 5%. An 80-10-10 is another common type of piggyback mortgage where the borrower would put 10% down and then get a first mortgage for 80% of the purchase price and a second mortgage for 10% of the purchase price.
One important consideration is that the interest rate pricing on the first mortgage may be slightly higher when you combine it with a second as adding a second mortgage is perceived as riskier to investors. When I have priced these out in the past, the rate is usually about an 1/8 higher, so it is not significant. Also, the interest rates on the second mortgage are typically higher than a first mortgage. I’ve seen them range from 5% to 10%.
When Should You Consider an 80-15-5?
An 80-15-5 or an 80-10-10 is a great option for borrowers who plan on paying down the principal balance of their mortgage loan at a much faster pace than the amortization schedule dictates. These borrowers may be anticipating a raise, the sale of a business or property, or an inheritance and does not want to have to go through the refinancing process a few years from now as interest rates may not be as low and the closing costs associated with a refinances can be costly. I would recommend a piggyback mortgage loan to a borrower planning to pay off the second mortgage within five years.
If you cannot stomach paying private mortgage insurance and have an aggressive attitude towards paying off debt but are short the full 20% down payment at the moment, a piggyback loan may be a good option for you. If you are looking to purchase a home on the East Coast, feel free to contact me for more information.