In a piggyback loan, instead of financing a home purchase with a single mortgage, you're doing it with two, which you take out at the same time: one big loan and a second, smaller one (the piggy on the back, so to speak). The second loan essentially provides funds towards your down payment.
A “piggyback” second mortgage is a home equity loan or home equity line of credit (HELOC) that is made at the same time as your main mortgage. Its purpose is to allow borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.
Qualifying for a piggyback loan can be more challenging than a primary mortgage. The interest paid on the second loan may be tax-deductible. You'll have two monthly mortgage payments. Your two monthly payments might be cheaper than a jumbo loan payment.
Borrowers often get piggyback loans to avoid paying PMI or higher interest rates, or to avoid taking out a jumbo loan. The first mortgage will typically cover 80% of the purchase price as a traditional 30-year fixed rate mortgage without the usual private mortgage insurance.
A “piggyback transaction” involves selling a property and using the proceeds from the sale to purchase a new property.
Piggyback mortgage example
You'll need a mortgage loan to pay the remaining $360,000. If you used a piggyback loan to buy this same $400,000 home, your second mortgage would provide another $40,000 to match your $40,000 cash down payment. As a result, your primary mortgage amount would go down to $320,000.
Examples from Collins dictionaries
They give each other piggy-back rides. My father carried me up the hill, piggyback. I was just piggybacking on Stokes's idea. They are piggybacking onto developed technology.
The Advantages of a Piggyback Mortgage
The amount you have to pay for PMI varies based on the size of your loan. Typically, it's between 0.3% and 1.5% of the loan value. And when you go with a piggyback mortgage, the PMI rules don't apply, so it doesn't factor into your monthly mortgage payment calculation.
The first loan is a traditional mortgage that covers 80% of the home's purchase price. The second loan covers 10% of the home's price and is usually a home equity loan or home equity line of credit (HELOC) that effectively “piggybacks” on the first. The remaining 10% is paid with a cash down payment.
Yes. A piggyback loan is just another name for a second mortgage, and you are allowed to refinance any second mortgage. Some homeowners may refinance their piggyback loan by rolling it into their primary mortgage via a cash-out refinance.
An 80-10-10 mortgage is structured with two mortgages: the first being a fixed-rate loan at 80% of the home's cost; the second being 10% as a home equity loan; and the remaining 10% as a cash down payment.
Does Piggybacking Really Work? A 2010 Federal Reserve study found that thin credit files (meaning those with few accounts reporting) had one of the largest score improvements from piggybacking, with score gains averaging between 45 and 64 points.
A 75/15/10 Piggyback Loan
A loan with a 75/15/10 split is another popular piggyback loan option. In this case, a first mortgage represents 75% of the home's value, while a home equity loan accounts for another 15%. And like the 80/10/10 split, the remaining 10% is the down payment.
How can piggybacking hurt your credit score? If the primary account holder doesn't make their payments, your payment history, and therefore your credit score, can be negatively impacted. Also, if the account holder has a high credit utilization ratio, you might further damage your credit score.
Piggybacking credit is when someone adds you as an authorized user on their credit card to help boost your credit. This method isn't guaranteed to work, one reason being that not all credit card companies report authorized users' activity to the major consumer credit bureaus in a way that helps them build credit.
Piggyback was first used in the 16th century as an adverb, meaning "up on the back and shoulders" (as in "the child was carried piggyback"). It comes from a phrase of unknown origin, a pick pack. There is also the less-common adverb pickaback. The verb piggyback didn't piggyback on the adverb until the 19th century.
Piggyback mortgage requirements
You still need a strong credit score: about 700 or higher, though some lenders might offer them to people with scores as low as 680. It's wise to reduce your debt-to-income ratio (DTI) ratio as much as possible before applying, too.
The first mortgage covers 80% of the price of your home, the second mortgage covers 10% and the remaining 10% is your down payment. An 80-10-10 mortgage is designed to help you avoid private mortgage insurance and sidestep the standard 20% down payment.
Home Equity Loan Example
Many lenders have a maximum CLTV ratio of 80%. If your home is worth $300,000 and you have no existing mortgage, the maximum you could borrow would be 80% or $240,000. However, if you currently owe $150,000 on your first mortgage, subtract this from the total amount.
This means that the structure would be as follows: 80% is the initial mortgage, 15% is the second mortgage, and only 5% is the down payment! This is HUGE because the borrower can borrow a higher amount with only 5% down and no mortgage insurance!
There is no legal limit on the number of home equity products you can have at once. As long as you meet the lender's eligibility criteria and have enough equity in your home, you may take out more than one HELOC.
A reverse piggyback lens system comprises of a soft contact lens worn over a rigid gas permeable lens.
Preventing Wi-Fi Piggybacking Attacks. Wi-Fi Piggybacking occurs when an unauthorized user gains access to a wireless internet connection by intercepting network signals. This can allow them to steal bandwidth or sensitive data. Luckily, you can take steps to secure your Wi-Fi network against piggybacking attempts.
Yes. Lenders consider your debt capacity if you apply for a HELOC or home equity loan on your second home.