How a Piggyback Loan Works

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:
  • 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.
     I can be easily found at:

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

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       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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