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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
  Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   
   Trulia Acct. of Gene Mundt, Mortgage Lender   Zillow Acct. of Gene Mundt, Mortgage Lender  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender    
       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 Welcomed!



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