How Piggy Back Loans Work

With a piggy back loan, the homebuyer takes out two separate loans to finance the home purchase. The primary mortgage typically covers 80% of the home’s value, while the second loan (the “piggy back”) covers the remaining 10-20% down payment. This allows the buyer to avoid the added cost of PMI, which is required when the down payment is less than 20% of the home’s value.

The two loans are structured as separate financing agreements, but they work together to provide the necessary funds for the home purchase. The primary mortgage has a lower interest rate, while the second loan has a higher rate to compensate for the increased risk.

The Piggy Back Loan Process

Here’s how our home loan process works:

• Application: Apply for two loans simultaneously — one covering 80% of the home’s price and another for 10%, with a 10% down payment.
• Approval: Both loans undergo separate approval processes based on creditworthiness and financial stability.
• Closing: Finalize both loans at closing, signing necessary documents for each.
• Repayment: Make monthly payments on both loans until fully repaid.