July 31, 2021

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What Is A Piggyback Loan? | Personal-finance

Here’s how a piggyback loan works: You take out a mortgage for the usual 80% of the purchase price of the house. Instead of paying the other 20% in cash for a down payment, take out a second loan – usually 10% – and deduct the remaining 10% in cash.

For example, let’s say you want to buy a home for $ 200,000 and you’ve only saved $ 20,000. If you were using the piggyback lending strategy, you’d take out a $ 160,000 (80%) mortgage. Then you’d take out a piggyback loan for another $ 20,000 (10%). Finally, you’d pay the remaining $ 20,000 (10%) as a down payment.

With this strategy, you take out both loans at the same time. The second smaller loan, which is usually a Home equity loan or line of credit (HELOC) with a 10 year drawback, piggybacking on the first one that meets all of your credit needs.

However, you don’t necessarily have to borrow both loans from the same lender. Let your primary mortgage lender know that you are planning on using a piggyback loan and they will refer you to a second lender who can provide the additional financing.

Types of Piggyback Loans

While the above scenario is the most common piggyback loan structure, it isn’t the only way to split the funds. Here’s a closer look at the two most common options.