Piggyback Loan

September 2, 2010 by Ryan Davison · Leave a Comment

The Piggyback Loan is another loan that offers a low down payment as well as a way to avoid PMI (private mortgage insurance). It and can be used to finance 80% of the home’s purchase price. For instance, if a home buyer only has enough cash for a 5% down payment it would look like this. 80/15/5. The “80″ refers to 80% of the purchase price. The “15″ is the second mortgage which finances 15% of the purchase price. The “5″ is the down payment. Another one you could do would be 80/10/10. Some lenders will allow 80/20 where the second mortgage covers the rest of the purchase price with no down payment needed.

Cons

The second mortgage is usually financed at a higher rate than the first. Second mortgages have a shorter term then firsts and are usually confined to primary residences and they are also limited to amounts no higher than $100,000. However some lenders will allow more.

Pros

This is another loan option available if you dont have the 20% down for a conventional loan and want to avoid PMI.

Sometimes, the second loan can be structured in a way that gives the homeowner practical use. For instance, if the second loan is a home equity line of credit, the homeowner may draw money from the loan to use for anything they wish.

They may also be structured to allow interest-only payments. This means that for a specified period of time, you only have to pay the interest, though you can add as much principal on top of that as you wish. It gives homeowners the added flexibility to do what they want with there money.

There are so many loan options available right now. A few i have blogged about. Make sure you find a knowledgeable lender that can educate you and find the best one to suite your needs.