What Is a Piggyback Loan and How Does It Work?

What Is a Piggyback Loan: A Comprehensive Guide

Potentially avoid PMI expenses by using a piggyback loan to cover part of your down payment.

By Nick Dauk

Written by

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Nick Dauk has covered personal finance for more than three years, with expertise on travel, student and personal loans, and credit. His work has been featured by Business Insider, CBS News, MSN, Yahoo Finance, and the New York Post.

Edited by Valerie Morris

Written by

Valerie Morris

Editor

Valerie Morris has worked in personal finance for more than seven years. She's an expert on personal loans and mortgages.

Updated January 17, 2025

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The thought of immediately taking out a second mortgage loan on your new home may seem strange, but qualified borrowers may benefit from a piggyback loan. This secondary loan can help you avoid private mortgage insurance (PMI) if your down payment is lower than 20%. Consider the following when determining if a piggyback loan is the best option for you.

What is a piggyback loan?

A piggyback loan is just what it sounds like: It “piggybacks” on another loan. Even though it’s used in conjunction with a conventional mortgage loan, it’s a separate loan with its own interest rate, terms, and qualifying conditions.

Also called an 80-10-10 loan, a secondary mortgage piggyback loan is designed to help borrowers who can’t contribute a 20% cash down payment. Avoiding PMI with a piggyback loan is one of the top benefits.

Note:

Piggyback loans were common in the early 2000s when real estate prices were stable and mortgage rates were significantly lower. The housing boom collapsed in 2008, which coincided with the decline of piggyback loans’ popularity.

How does a piggyback loan work?

A piggyback loan isn’t a personal loan: It’s a home equity loan or home equity line of credit (HELOC) that you take out when you take out your initial mortgage.

Most lenders require borrowers to take out mortgage insurance if they can’t contribute at least 20%. The piggyback loan can cover 10% of the down payment, allowing the borrower to avoid PMI and only contribute the remaining 10% of the down payment. Because of this distribution, these are also called 80-10-10 loans.

Keep in mind:

A piggyback loan is a separate, second mortgage. Depending on how the lender structures the repayment, this means you might have to manage two separate loan payments each month.

What are the pros and cons of piggyback loans?

Piggyback loans, like all mortgage loans, are helpful financial resources when used responsibly. However, these financial commitments do have drawbacks that all borrowers must be aware of. Weigh the pros and cons of piggyback loans before applying for one:

Pros

Avoid PMI expenses
Contribute a smaller cash down payment
Secure funding for high-value homes without taking out a jumbo loan

Cons

Typically have higher interest rates
Interest rate might be adjustable, making payments unpredictable
More difficult to refinance

Who is a piggyback loan best suited for?

A piggyback loan might be a better option if you’re purchasing a home that requires a jumbo loan. A jumbo loan is a mortgage loan that exceeds the conventional loan limit (between $806,500 and $1,209,750 depending on the county). These loans typically cost more than a conforming mortgage, often having larger down payments and higher interest rates. If you’re buying a more expensive property, you may be able to take out an initial mortgage for the home’s value up to the loan limit then take out a piggyback loan for the remaining value to avoid taking out a single jumbo loan.

Piggyback loans may also be better suited for borrowers with high credit scores and low debt-to-income ratios (DTIs) but don’t have the funds available for a 20% down payment.

For example:

If you’re buying a home that costs $400,000 and you want to put 20% down, you’d need to contribute $80,000. A piggyback loan could help you cover half of that amount so you only have to save $40,000.

However, a piggyback loan isn’t the best option for all borrowers. While first-time homebuyers may see this as an attractive option if they can’t save 20% for a down payment, it’s not best for borrowers who have poor credit or plan to take out other loans to meet additional financial goals.

In addition, refinancing is difficult when you have two mortgage loans, particularly if they’re from two separate lenders. Unless you’re using your refinancing loan to pay off your piggyback mortgage, that lender may not agree to a refinance if your home has lost value or if you’re behind on payments.

How to apply for a piggyback loan

Applying for a piggyback loan is similar to applying for a conventional mortgage loan. Your best bet is to shop around, compare interest rates and qualifications, and go through the pre-approval process. The big difference is that qualifications may be stricter on this second loan and you may have to secure it through a second lender.

As you’re navigating the homebuying process, try to identify early on whether or not a piggyback loan is best for your situation. If you believe you may need this secondary mortgage loan, ask your lender to explain your options. Many lenders offer a type of 80-10-10 loan package under promotional names.

Piggyback loan FAQ

What is the 80-10-10 piggyback loan structure?

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The 80-10-10 piggyback loan structure assumes that the borrower can’t contribute a 20% down payment. An initial mortgage loan is taken out to cover 80% of the overall home’s value. A second loan is taken out to cover 10% of the outstanding balance, and the homebuyer contributes the final 10% of the remaining balance in cash.

Can a piggyback loan help me avoid PMI?

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Yes, a piggyback loan can help a borrower avoid PMI. When a borrower can’t put 20% down toward their home, the lender may require them to pay for mortgage insurance. A piggyback loan can help the borrower avoid PMI by helping them make a 20% down payment.

Are piggyback loans more expensive than conventional mortgages?

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Piggyback loans may be more expensive than a conventional mortgage with a full 20% down payment. However, there are situations where it could be cheaper in the long run. Ask your lender to provide you with a quote for a mortgage loan with PMI and a quote for a mortgage loan with a secondary piggyback loan then compare the total expenses over the lifetime of the loans.

Can I use a piggyback loan for investment properties?

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Lenders always have the final say when it comes to approving a borrower for a mortgage and piggyback loan, no matter if it’s for a primary property or investment property. If approved, you could use a piggyback loan for investment properties. Keep in mind that lenders may have different credit score or DTI requirements for taking out an investment property loan, especially if you have an existing mortgage on your primary residence.

What are the credit score requirements for a piggyback loan?

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Credit score requirements will vary, but many lenders require a score of 700 or better. The PMI is meant to protect the lender in the event that you default on your mortgage; when replacing the PMI with a piggyback loan, the lender takes on more risk. It may require a higher credit score to limit how many borrowers are eligible for this secondary loan.

Meet the expert:

Nick Dauk