How a Piggyback Loan Works
Purpose of a Piggyback Loan: To reduce the amount of the first loan amount, used in addition to a Borrower's own funds (Down Payment).
Advantages of Using a Piggyback Loan: The Piggyback is typically used to reduce the first loan amount to an 80% level, so as to eliminate the cost of Mortgage Insurance, or to conform to certain programs' requirements of a 20% Down Payment.
A Piggyback Loan can also reduce loan amounts of first mortgages down below a Jumbo Loan* level. (*$417,000+ in IL/most markets. Higher in high-end markets.) At the lower, non-Jumbo Loan level there are frequently better or more options in the Conforming Loan Markets (not always).
Drawbacks: A second lien (Mortgage/HELOC) is filed against the property, as collateral for the loan/note. There are typically additional Closing Costs from the Lender, and from the Title Company. There is a second loan application process, and sometimes, duplication of efforts and documentation needed.
Example of a Piggyback Loan:
Sales Price: $400,000
1st Loan Amount: $320,000 (80%)
2nd Loan Amount: $ 40,000 (10%) Piggyback
Buyer's Down Payment: $ 40,000 (Buyer has only 10% Down)
Mortgage Insurance: Eliminated! (1st Loan is at 80% Value)
Savings in Payments: In order to determine your savings you must compare the savings with the resulting payment associated with the 2nd Loan ... VERSUS ... the payments for a loan at 90% Loan-to-Value with Monthly Mortgage Insurance.
In this type of scenario:
Piggybacks are also used to avoid using a Jumbo Loan as well.
An example of a Jumbo Price Scenario using a Piggyback Loan follows:
Sales Price: $600,000 (Buyer has 20% Down = $120,000)
Jumbo Loan: $480,000
- OR -
1st Mortgage Loan: $417,000 (Maximum "Conforming" Loan*)
$ 63,000 ( Piggyback 2nd Mortgage)
$480,000 TOTAL Loans
* Used to avoid a Jumbo Loan Program if market conditions/Guidelines Dictate
In my next post, "Jumbo .. or Piggyback Loan. Which is Best?" ... I will talk about the pros and cons of each type of loan, how each loan can be utilized, and what steps you should take when making your financing decision.
* Considering a Purchase, New Construction, or Refinance of a home in the greater Chicagoland area? Contact Me today! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf immediately.
I can be easily found at:
Example of a Piggyback Loan:
Sales Price: $400,000
1st Loan Amount: $320,000 (80%)
2nd Loan Amount: $ 40,000 (10%) Piggyback
Buyer's Down Payment: $ 40,000 (Buyer has only 10% Down)
Mortgage Insurance: Eliminated! (1st Loan is at 80% Value)
Savings in Payments: In order to determine your savings you must compare the savings with the resulting payment associated with the 2nd Loan ... VERSUS ... the payments for a loan at 90% Loan-to-Value with Monthly Mortgage Insurance.
In this type of scenario:
- Borrowers SAVE the Cost of Mortgage Insurance
- 1st Mortgage Loan Payment is LOWER, reducing the LTV (Loan to Value) of the FIRST Loan
Piggybacks are also used to avoid using a Jumbo Loan as well.
An example of a Jumbo Price Scenario using a Piggyback Loan follows:
Sales Price: $600,000 (Buyer has 20% Down = $120,000)
Jumbo Loan: $480,000
- OR -
1st Mortgage Loan: $417,000 (Maximum "Conforming" Loan*)
$ 63,000 ( Piggyback 2nd Mortgage)
$480,000 TOTAL Loans
* Used to avoid a Jumbo Loan Program if market conditions/Guidelines Dictate
In my next post, "Jumbo .. or Piggyback Loan. Which is Best?" ... I will talk about the pros and cons of each type of loan, how each loan can be utilized, and what steps you should take when making your financing decision.
* Considering a Purchase, New Construction, or Refinance of a home in the greater Chicagoland area? Contact Me today! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf immediately.
Gene Mundt
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
American Portfolio Mortgage Corp.
NMLS #175656
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI.
Your Referrals are Appreciated & Welcomed!
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