For buyers who can't quite reach a 20% down payment but want to avoid private mortgage insurance, a piggyback loan can be an alternative worth understanding. Rather than taking a single mortgage and paying PMI on it, a piggyback structure splits the financing into two loans that together cover the home's purchase price, typically without triggering mortgage insurance at all.
What a Piggyback Loan Is
The most common version is known as an "80-10-10" loan. In this structure:
- The first mortgage covers 80% of the home's purchase price.
- A second loan, usually a home equity loan or HELOC, covers 10%.
- The buyer's cash down payment covers the remaining 10%.
Because the primary mortgage sits at or below 80% loan-to-value (LTV), it generally does not require PMI under conventional loan guidelines, even though the buyer effectively put down only 10% of their own cash. Variations exist, including 80-15-5 or 80-5-15 structures, depending on how much cash the buyer has available and how the lender structures the second loan.
Why Buyers Consider This Structure
The core appeal is avoiding a monthly PMI payment, which on a conventional loan commonly runs in the range of roughly 0.3% to 1.5% of the loan amount annually, depending on credit score, LTV, and loan type. Some buyers view a piggyback structure as more cost-effective than PMI over time, since PMI is typically viewed as "dead money" that provides no equity benefit to the borrower.
There are other reasons to consider this structure:
- Buyers who want to stay under a conforming loan limit and avoid a jumbo loan may split financing to keep the first mortgage within conforming limits.
- Some buyers use a piggyback loan strategically for tax planning purposes, since mortgage interest deductibility rules differ from PMI treatment (borrowers should consult a tax professional for their specific situation).
- It can offer flexibility for buyers whose down payment cash is tied up but who don't want to wait to accumulate a full 20%.
The Tradeoffs
Piggyback loans are not automatically cheaper than PMI, and the math depends heavily on individual circumstances. Key tradeoffs include:
Two sets of closing costs. Because a piggyback loan involves two separate loans, buyers may face two sets of underwriting requirements, and in some cases, two sets of closing costs, though some lenders bundle these more efficiently than others.
Higher rate on the second loan. The second mortgage or HELOC typically carries a meaningfully higher interest rate than the first mortgage, since it sits in a subordinate lien position and carries more risk for the lender. This second-loan rate can sometimes offset the savings from avoiding PMI, particularly if rates on second liens are elevated.
Variable-rate exposure. If the second loan is a HELOC, its rate is usually variable and tied to an index, meaning payments could rise over time. This adds a layer of payment uncertainty that a fixed-rate PMI arrangement does not carry.
More complex qualification. Lenders evaluate combined debt-to-income ratios across both loans, and not every borrower will qualify for the second loan even if they qualify for the first. Credit score requirements for the second lien are often stricter than for the primary mortgage.
PMI eventually goes away; a second loan doesn't automatically. PMI on a conventional loan can typically be cancelled once the loan balance drops to 80% of the home's original value, and is often required to be removed automatically at 78%. A piggyback second mortgage, by contrast, is a separate debt obligation that must be paid down or refinanced on its own schedule — it doesn't disappear as equity builds the way PMI cancellation does.
Comparing the Math
Before choosing a piggyback structure over PMI, it generally makes sense to compare:
- The total monthly payment under a single first mortgage plus PMI versus the combined payment of two loans.
- The interest rate spread between the first mortgage rate and the second loan rate.
- How long the buyer expects to stay in the home, since PMI is typically temporary while a second mortgage is a longer-term commitment.
- Closing costs associated with originating two loans versus one.
A mortgage payment calculator can help model the monthly cost of a single loan with PMI, while comparing that against quotes for an 80-10-10 structure from a lender can clarify which approach costs less over a realistic holding period.
Who Tends to Use Piggyback Loans
Piggyback structures are more common among buyers with strong credit and stable income who can qualify for two simultaneous loans, in higher-cost housing markets where staying under conforming loan limits matters, and among buyers who have calculated that the combined cost of two loans is lower than PMI over their expected time in the home. They are less common for first-time buyers with limited cash reserves, since qualifying for two loans at once generally requires solid documentation and reserves for both.
Because piggyback loans add complexity, it's worth discussing the specific numbers — rates on both loans, total closing costs, and how they compare to standard financing such as an FHA loan or a conventional loan with PMI — with a licensed lender before deciding on a financing structure. Buyers may also want to review down payment requirements by loan type to understand how piggyback financing compares with more conventional paths to homeownership.