Piggyback Loan is a term used in home financing and mortgages. It 's a financing option that allows the borrower to purchase property using two different lenders. When applying for a piggyback loan the lender usually offers three different options: the 80-20 loan, the 80-15-5 loan and the 80-10-10 loan. All three financing options allow you to finance 80% of the home 's purchase price through the first lender and a portion or the rest through a second lender. With the 80-20 loan the remaining 20% of the purchase price is financed through the second lender. The 80-15-5 loan allows the buyer to pay down 5% of the loan and the second lender will finance the remaining 15%. Finally the 80-10-10 loan allows the buyer to pay down 10% of the loan
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Pros of a Piggyback loan There are three major pros of choosing a piggyback loan: The ability to purchase more home, easier to get approved financing with little or no money down, and avoid PMI or private mortgage …show more content…
Finally, a piggyback loan allows the home buyer to purchase a home without paying PMI or private mortgage insurance. PMI is basically an insurance policy for the lender in case the borrower defaults on the loan. The lender however makes the borrower pay for this insurance policy either up front or as a monthly payment. Most lenders require PMI unless the home buyer has at least 20% equity in the home. Since a piggyback loan takes care of the 20% equity through another lender the first lender doesn 't require the purchase of PMI. Cons of a Piggyback loan There are some cons of choosing a piggyback loan: Higher interest rates, fees or large balloon payments, restrictions on home equity loans, and no way to drop your payment by getting rid of PMI. First, a piggyback loan always carries a higher interest rate than a standard fixed rater mortgage. The lenders are assuming a little more risk therefore they charge higher interest rates. Sometimes the lender of the 80% will offer very competitive rates, however the second lender will often have an interest rate 3% - 4% higher than the first loan. For the first mortgage may carry an interest rate of 6.25% and the second mortgage may have an interest rate of
Pros of a Piggyback loan There are three major pros of choosing a piggyback loan: The ability to purchase more home, easier to get approved financing with little or no money down, and avoid PMI or private mortgage …show more content…
Finally, a piggyback loan allows the home buyer to purchase a home without paying PMI or private mortgage insurance. PMI is basically an insurance policy for the lender in case the borrower defaults on the loan. The lender however makes the borrower pay for this insurance policy either up front or as a monthly payment. Most lenders require PMI unless the home buyer has at least 20% equity in the home. Since a piggyback loan takes care of the 20% equity through another lender the first lender doesn 't require the purchase of PMI. Cons of a Piggyback loan There are some cons of choosing a piggyback loan: Higher interest rates, fees or large balloon payments, restrictions on home equity loans, and no way to drop your payment by getting rid of PMI. First, a piggyback loan always carries a higher interest rate than a standard fixed rater mortgage. The lenders are assuming a little more risk therefore they charge higher interest rates. Sometimes the lender of the 80% will offer very competitive rates, however the second lender will often have an interest rate 3% - 4% higher than the first loan. For the first mortgage may carry an interest rate of 6.25% and the second mortgage may have an interest rate of