The Pros and Cons of a Piggyback Mortgage Loan

A piggyback mortgage lets you finance a home with two loans instead of relying on one primary mortgage. A common structure is an 80/10/10 loan, where the first mortgage covers 80% of the purchase price, a second mortgage covers 10% and the buyer puts 10% down. This approach can help some borrowers avoid private mortgage insurance (PMI) or keep the first mortgage below the conforming loan limit. But the second loan may carry a higher or variable interest rate, so comparing the combined cost with a single mortgage is important before choosing this strategy.

Consider working with a financial advisor as you sort through all the options available to someone looking for a mortgage.

What Is a Piggyback Mortgage?

A piggyback mortgage, often called an “80/10/10 loan,” is a strategy that combines two separate loans to finance a home purchase. The first mortgage typically covers 80% of the home’s value, while a second loan, or “piggyback,” finances another 10%. The remaining 10% usually comes from the buyer’s down payment. The second loan may be a closed-end home equity loan or a home equity line of credit (HELOC) opened at the same time as the first mortgage.

By keeping the first mortgage at 80% of the home’s value, a borrower may be able to avoid private mortgage insurance (PMI) on that loan. However, 80/10/10 is only one possible structure. Lenders may offer other combinations depending on the borrower, property and loan program, and current conforming mortgage rules do not impose a universal 90% combined loan-to-value limit.

In essence, a piggyback loan allows homeowners to bridge the gap between their savings and a larger down payment. The trade-off is that the borrower must qualify for and repay two loans, and the second mortgage typically carries a higher interest rate than the first. If it is a HELOC, the rate may also be variable.

Piggyback Mortgage History

In the early 2000s, piggyback mortgages became particularly common as borrowers used second mortgages to finance part or even all of what otherwise would have been a down payment. In 2006, roughly a quarter of borrowers used piggyback financing, according to research from New York University’s Furman Center.

When home prices fell during the housing crisis, some borrowers who had financed nearly the entire purchase price were left with little or negative equity. Having a first and second mortgage could also make loan modifications, short sales and refinancing more complicated because two lienholders were involved.

Piggyback mortgages are less common today, but they remain available. There is no blanket rule limiting them to 90% combined loan-to-value. For example, Fannie Mae permits certain qualifying purchase mortgages with LTV, CLTV or HCLTV ratios as high as 97%, while eligible Community Seconds financing can allow a CLTV of up to 105%. Actual limits depend on the lender, mortgage product, property and borrower qualifications.

The Advantages of a Piggyback Mortgage

People often take out piggyback mortgages to avoid private mortgage insurance. Also known as PMI, this is insurance that protects the lender if a borrower defaults. On many conventional first mortgages, PMI is generally required when the borrower finances more than 80% of the home’s value. By limiting the first mortgage to 80%, an 80/10/10 structure can potentially avoid PMI on that loan.

That benefit should be compared with how long PMI would actually last on a single mortgage. For many covered conventional mortgages, a borrower can request PMI cancellation once the principal balance is scheduled to reach 80% of the home’s original value if applicable conditions are met. PMI generally must terminate automatically when the scheduled balance reaches 78% if the borrower is current on payments.

This kind of loan can also make sense if you’re planning to borrow a substantial amount. Jumbo loans are mortgages that exceed the loan limits set for loans that Fannie Mae and Freddie Mac can acquire. For 2026, the baseline conforming loan limit for a one-unit property in most of the U.S. is $832,750, with limits as high as $1,249,125 in many high-cost areas. A piggyback structure can sometimes keep the first mortgage within the applicable conforming limit, although the cost of the second loan still needs to be considered. Some borrowers may also choose to pay the second mortgage down aggressively to reduce the higher-rate debt sooner.

Mortgage-interest deductions also depend on current federal tax rules rather than on whether the debt is the first or second mortgage. If you itemize, interest on both loans may qualify when the debt is secured by a qualified home and the proceeds are used to buy, build or substantially improve it. For post-2017 acquisition debt, the federal limit generally applies to up to $750,000 of combined qualifying mortgage debt, or $375,000 for married taxpayers filing separately. The old rule allowing a separate deduction for the first $100,000 of home-equity debt is no longer the applicable framework.

Beginning in 2026, qualified mortgage insurance premiums may also be treated as deductible mortgage interest for eligible taxpayers. That means the potential tax treatment of PMI should be included when comparing a piggyback loan with a single mortgage that carries mortgage insurance.

The Disadvantages of Piggyback Mortgages

While this kind of loan structure can help you avoid PMI, it may still be more expensive overall. Since you’re taking out two loans, you can face additional origination, appraisal, recording or other loan-related costs associated with the second mortgage, although you will not necessarily pay every closing cost twice.

The second mortgage is also likely to carry a higher interest rate than the first. If the second loan is a HELOC, the rate may be variable, meaning the payment can rise if market interest rates increase. The second mortgage also remains a separate debt until it is repaid, while PMI on many conventional mortgages can eventually be canceled or automatically terminated.

You can also run into trouble if you try to refinance your mortgages later. A new first-mortgage lender generally needs the second lien to remain subordinate. That may require the second-mortgage lender to approve a subordination agreement. If it won’t, you may need to repay, refinance or otherwise resolve the second lien before completing the new first mortgage.

Check Your Credit Score and Debt First

If you’re applying for a piggyback mortgage, there is no single credit-score requirement that applies to every 80/10/10 loan. You must qualify for both the first and second mortgages under the applicable lenders’ underwriting standards, and a lender may require stronger credit or other compensating factors because the combined financing increases leverage.

Your debt-to-income ratio also matters because the payment on the second mortgage generally counts as part of your monthly housing obligations when the first mortgage is underwritten. If the second loan is a HELOC or carries an adjustable rate, consider whether you could still afford the combined payments if the rate increases.

FICO Credit Score Ranges

Rather than assuming a particular score automatically qualifies you, compare quotes from lenders that offer simultaneous first and second mortgages. The cost of the piggyback structure should then be compared with alternatives such as a conventional mortgage with PMI, a lower-down-payment conventional loan or an FHA loan.

Bottom Line

A piggyback mortgage can help a homebuyer reduce the size of the first mortgage, avoid PMI, or potentially keep the primary loan within conforming loan limits. But avoiding mortgage insurance does not automatically make two loans cheaper than one. Before choosing an 80/10/10 or similar structure, compare the interest rates, monthly payments, closing costs and tax treatment of both loans with the cost of a single mortgage that includes PMI. Also consider how quickly PMI could be removed and whether a second mortgage could complicate a future refinance. The better option is the one with the lower overall cost and a payment structure you can comfortably manage.

Tips on Home Buying

• Consider working with a financial advisor as you think about mortgages. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Have you checked out your local and state housing programs? Many states, such as California, offer down payment programs or first-time homebuyer grants that can help you buy the home you want.
• You may be eligible for specialty loans such as a USDA loan or VA home loan. If you qualify, the terms are generally favorable to those with low down payment savings.

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