A piggyback loan pairs a first mortgage with a simultaneous second lien to keep the first at or below 80% LTV. The borrower avoids private mortgage insurance without the full 20% down payment. Two common structures are 80-10-10 and 80-15-5, where the numbers represent first lien LTV, second lien, and borrower down payment respectively.
80-10-10 vs. 80-15-5
In an 80-10-10: the first mortgage covers 80% of the purchase price, the second covers 10%, and the borrower brings 10% down. In an 80-15-5: the first covers 80%, the second covers 15%, and the borrower brings 5% down. The second lien is typically a HELOC or home equity loan at a higher rate than the first.
Qualifying for Both Payments
The borrower must qualify on both the first and second payments simultaneously. The second lien often carries a rate 1.5% to 3% above the first. Combined DTI must still meet first lien program guidelines. Fannie Mae and Freddie Mac allow piggybacking on conforming first liens if the second lien lender is approved.
- ✦First lien: standard conventional guidelines, 620+ FICO minimum
- ✦Second lien: many credit unions and banks offer these, some non-QM lenders
- ✦Combined LTV: varies by lender, typically max 90% CLTV for best pricing
- ✦Both payments count in DTI calculation
When Piggyback Beats PMI
Run the math for each borrower. PMI rates range from 0.2% to 1.5% of the loan amount annually depending on FICO and LTV. A piggyback eliminates PMI but adds a second payment. For buyers planning to stay 5+ years in a rising rate environment, PMI may be cheaper short term. For buyers planning to recast or pay down the second fast, piggyback often wins.
Aria can model the break-even between a piggyback structure and conventional PMI for any purchase price and credit profile. Ask at vicariointel.com.
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