Piggyback Loan (80/10/10): Avoid PMI Without 20% Down

Saving a full 20% down payment can take years, especially in expensive housing markets. A piggyback loan—also called an 80/10/10 loan—offers a strategic alternative: avoid private mortgage insurance while putting down less than 20% by splitting your financing into two separate mortgages.

What Is a Piggyback Loan?

A piggyback loan is a financing structure that uses two simultaneous mortgages to purchase a home:

• First mortgage: 80% of the purchase price
• Second mortgage: 10% of the purchase price
• Your down payment: 10% of the purchase price

This 80/10/10 structure is the most common piggyback configuration, though you'll also encounter 80/15/5 (15% second mortgage, 5% down) and other variations. The key principle remains the same: keep the first mortgage at or below 80% loan-to-value (LTV) to avoid private mortgage insurance requirements.

The second mortgage "piggybacks" on the first, closing simultaneously and subordinating to the primary lien. Both loans work together to finance your purchase without PMI.

How Piggyback Loans Work

Here's the mechanics using a $500,000 home purchase:

Traditional Single Mortgage (90% LTV)

• First mortgage: $450,000 (90% of $500,000)
• Down payment: $50,000 (10%)
• PMI required: ~$300-400/month until 78% LTV reached
• Total payment: ~$3,200/month including PMI

Piggyback Loan Structure (80/10/10)

• First mortgage: $400,000 (80% of $500,000) at 6.5%
• Second mortgage: $50,000 (10% of $500,000) at 8.5%
• Down payment: $50,000 (10%)
• No PMI required
• Total payment: ~$2,950/month (no PMI)

In this scenario, you avoid $300-400 monthly PMI by taking a smaller second mortgage at a higher rate. Your combined payment is often lower, and both mortgage interest payments are tax-deductible (subject to IRS limits), while PMI deductibility is limited.

Common Piggyback Configurations

Several structures address different down payment situations:

80/10/10: Most popular configuration. Put 10% down, finance 80% with the first mortgage, 10% with the second.

80/15/5: When you have only 5% down payment saved. Finance 80% first mortgage, 15% second, contribute 5%.

80/5/15: If you have 15% saved but want to avoid PMI and preserve some cash. Finance 80% first, 5% second, contribute 15%.

75/15/10: For jumbo loans where keeping the first mortgage under conforming limits helps. Finance 75% at conforming jumbo rates, 15% second, 10% down.

The numbers always add up to 100% of the purchase price, with the first mortgage strategically set to avoid PMI (typically 80% or below) and your down payment and second mortgage covering the remainder.

Second Mortgage Types

The piggyback second mortgage typically takes one of two forms:

Home Equity Loan (Fixed)

• Fixed interest rate
• Fixed monthly payment
• Typical term: 15-20 years
• Predictable budgeting
• Generally 1-2% higher rate than first mortgage

[Home Equity Line of Credit](/blog/best-heloc-lenders-2026) (HELOC)

• [Variable interest rate](/blog/heloc-interest-rates-explained)
• Interest-only or minimum payments during draw period
• Typical draw period: 10 years, then repayment period
• More flexibility but less predictability
• Rate can fluctuate with prime rate changes

Most borrowers prefer the fixed home equity loan for predictable payments, though HELOCs offer flexibility to pay down principal faster when cash flow allows.

Advantages of Piggyback Loans

PMI Avoidance: Eliminate $200-500 monthly PMI costs that aren't tax-deductible and don't build equity.

Interest Deductibility: Both mortgages [qualify for mortgage](/blog/how-to-lower-dti) interest deduction (up to $750,000 total debt for loans originated after December 15, 2017), unlike PMI which has limited deductibility.

Faster Home Purchase: Buy now with 5-10% down rather than waiting years to save 20%.

Preserved Cash Reserves: Keep more cash for emergencies, repairs, or other investments rather than depleting savings for a larger down payment.

Better Jumbo Loan Rates: In jumbo territory, keeping the first mortgage at conforming limits ($766,550 in most areas for 2026) while using a second mortgage for the excess can secure better rates.

No Appraisal Delays: Unlike refinancing to remove PMI later, you avoid the appraisal requirement and value appreciation waiting period.

Full Control: Pay off the second mortgage aggressively when cash flow allows, retiring that debt while maintaining your low first mortgage rate.

Disadvantages and Risks

Two Monthly Payments: Managing two mortgages means two due dates, two servicers, and more complexity. Set up auto-pay to avoid missing payments.

Higher Second Mortgage Rate: Second mortgages typically carry rates 1.5-3% above first mortgage rates due to higher risk for the lender (they're second in line if you default).

Higher Overall Interest: Despite avoiding PMI, total interest paid may exceed a single mortgage with PMI, especially if you would have removed PMI within a few years.

Qualification Difficulty: You must qualify for both mortgages simultaneously, including debt-to-income calculations that include both payments.

Closing Costs: Two mortgages mean two sets of closing costs, though the second mortgage costs are typically modest.

Variable Rate Risk: If you use a HELOC for the second mortgage, rate increases can significantly raise your payment.

Balloon Payments: Some second mortgages feature balloon payments after 5-10 years, requiring refinancing or payoff.

Harder to Refinance: Refinancing becomes complex with two loans. You'll need to either pay off the second or convince the second lender to resubordinate behind a new first mortgage.

Who Benefits Most from Piggyback Loans

Several situations make piggyback loans particularly advantageous:

Borrowers with 10-15% Down: You have significant savings but not quite 20%. PMI avoidance saves money while getting you into a home sooner.

High-Income Earners: Tax deductibility of mortgage interest matters more in higher tax brackets, making the interest-deductible second mortgage more valuable than non-deductible PMI.

Jumbo Loan Borrowers: Keep the first mortgage at conforming limits to access better rates, using a second mortgage for the excess.

Rising Market Buyers: When home prices are appreciating quickly, buying now with 10% down beats waiting to save 20% while prices rise 5-10% annually.

Temporary Cash Constraints: If you have high income but temporarily low cash reserves (recent large purchase, business investment), piggyback loans let you buy without depleting all savings.

Strategic Cash Managers: Borrowers who prefer leveraging assets rather than maximizing down payments, keeping cash invested elsewhere at higher returns.

Qualifying for Piggyback Loans

Lenders evaluate both mortgages together, so expect rigorous qualification:

[Debt-to-Income Ratio](/blog/dti-ratio-explained): Both mortgage payments count toward DTI. With higher rates on the second mortgage, your total payment may push DTI limits. Most lenders cap DTI at 43-45%.

Credit Score: Minimum scores typically range from 680-700, higher than single-mortgage requirements. The dual-loan structure represents more risk.

Income Documentation: Full documentation (W-2s, tax returns, pay stubs) is standard. Alternative documentation is rare for piggyback structures.

Reserves: Lenders often require 3-6 months of reserves for both mortgage payments, more than single-mortgage requirements.

Property Type: Primary residences get the best treatment. Second homes and investment properties face more restrictions and higher rates.

Appraisal: Properties must appraise at purchase price since you're financing 90-95% of value with minimal equity cushion.

Finding Piggyback Loan Lenders

Not all lenders offer piggyback structures, requiring targeted shopping:

Portfolio Lenders: Banks and credit unions that keep loans in-house most commonly offer piggyback programs with competitive terms.

Credit Unions: Member-owned institutions often provide both mortgages in-house, simplifying the process and improving pricing.

Mortgage Brokers: Experienced brokers can pair first mortgage lenders with second mortgage sources, coordinating both closings.

Nationwide Lenders: Some large lenders like Wells Fargo and US Bank offer piggyback programs, though availability varies by market and time.

Local Banks: Community banks familiar with your market may offer the most flexible piggyback terms.

Piggyback vs. Single Mortgage with PMI

Run the numbers carefully before deciding:

Calculate Break-Even: How long would you pay PMI? Most lenders require 2 years minimum plus 80% LTV (through appreciation or pay-down) before removing PMI. If you plan to stay 10+ years, PMI might cost less than higher second mortgage interest.

Consider Tax Benefits: In higher tax brackets, deductible mortgage interest on the second loan saves more than non-deductible (or limited-deductible) PMI.

Evaluate Complexity: Managing two loans requires more attention. PMI is set-it-and-forget-it until you qualify for removal.

Assess Rate Environment: In low-rate environments, PMI might be cheaper. In higher-rate environments, the gap between first and second mortgage rates narrows, making piggyback loans more competitive.

Factor Refinancing Plans: If you plan to refinance within 2-3 years (rate drop, cash-out, etc.), simple PMI might be easier since you're replacing it anyway.

Strategies for Managing Piggyback Loans

Maximize the benefits with smart management:

Pay Down Second Mortgage Aggressively: Direct extra payments to the second mortgage given its higher rate. Eliminating this debt quickly saves substantial interest.

Refinance When Beneficial: Once you reach 20% equity through payments and appreciation, consider refinancing both loans into a single mortgage at better terms.

[Build Home Equity](/blog/equity-building-strategies): Target 20% equity as soon as possible, opening refinancing options and reducing risk.

Monitor Rate Changes: If you used a HELOC, track prime rate movements and consider converting to a fixed rate if increases seem likely.

Maintain Both Payments: Never miss payments on either mortgage. The second mortgage default can trigger first mortgage acceleration clauses.

Set Up Auto-Pay: Eliminate the risk of missing one payment while making the other. Both need to clear on time, every time.

Piggyback Loans in Different Markets

Market conditions affect piggyback loan attractiveness:

High-Cost Markets: In expensive areas (San Francisco, New York, Seattle), saving 20% might mean $200,000+, making 10% down via piggyback loans far more accessible.

Rising Markets: When prices climb 5-10% annually, buying now with a piggyback loan beats watching your down payment percentage shrink as prices rise faster than you save.

Stable Markets: In flat or declining markets, you might wait for 20% down without penalty, making single-mortgage PMI acceptable short-term.

Jumbo Territory: Markets with median prices above conforming limits benefit most from keeping first mortgages conforming and using second mortgages for excess.

Alternatives to Piggyback Loans

Consider these options before committing:

Single Mortgage with PMI: Simpler structure, potentially lower total cost if you remove PMI within 2-3 years.

Lender-Paid PMI: Higher interest rate in exchange for lender covering PMI. Rate never decreases, but simplifies monthly payment.

FHA Loan: 3.5% down payment required, but mortgage insurance never falls off unless you refinance. Calculate total costs carefully.

Conventional 97: Fannie Mae and Freddie Mac programs allow 3% down on conforming loans, though PMI will apply.

Gift Funds: Consider gift funds from family to reach 20% down, avoiding both PMI and second mortgages.

[Down Payment Assistance](/blog/down-payment-assistance-programs): First-time buyers may qualify for DPA programs that provide funds to reach higher down payments.

Frequently Asked Questions

Is the second mortgage rate always higher than the first?

Yes, second mortgages carry higher rates because they're subordinate to the first mortgage. In foreclosure, the first mortgage gets paid first, making the second lender's position riskier. Expect second mortgage rates 1.5-3% higher than first mortgage rates, varying by lender and borrower credit quality.

Can I pay off the second mortgage early without penalty?

Most second mortgages allow early payoff without penalties, but confirm this before closing. Paying off the higher-rate second mortgage as quickly as possible saves substantial interest. Some balloon-payment second mortgages are designed for payoff or refinancing after 5-10 years.

What happens if I want to refinance later?

Refinancing with a piggyback structure requires either paying off the second mortgage or convincing the second lender to resubordinate (agree to remain in second position behind the new first mortgage). Many second lenders won't resubordinate, making payoff the cleaner option. Plan for this when considering piggyback loans.

Will my second mortgage payment ever decrease?

With a fixed home equity loan, your payment remains constant. With a HELOC, payments fluctuate with prime rate changes—rising when rates increase, falling when they decrease. Most HELOCs have rate caps limiting how high rates can climb.

Are piggyback loans still available after the 2008 housing crisis?

Yes, though less common than before 2008. Lenders tightened standards, requiring higher credit scores and stricter income documentation. Piggyback loans are no longer the default for minimal-down-payment buyers, but they remain available for qualified borrowers, particularly through portfolio lenders and credit unions.

Can I use a piggyback loan for an investment property?

Piggyback loans for investment properties are rare and restrictive. Most lenders require 20-25% down for investment properties anyway, eliminating PMI concerns. If you find a lender offering investment property piggyback loans, expect significantly higher rates and stricter qualification than primary residence programs.

How do piggyback loans affect my debt-to-income ratio?

Both mortgage payments count toward your DTI, which can push you close to the 43-45% limit. The second mortgage's higher interest rate means a larger payment relative to the loan amount. Calculate your combined payment carefully—you might qualify for a $450,000 single mortgage but only $400,000 first mortgage + $50,000 second mortgage due to the higher second-mortgage rate.

Should I choose a fixed home equity loan or HELOC for my second mortgage?

Fixed home equity loans provide payment predictability but less flexibility. HELOCs offer flexibility to make [interest-only payments](/blog/heloc-draw-period-vs-repayment) or pay down principal aggressively, but rates can rise unexpectedly. Most borrowers prefer fixed loans for budgeting stability, especially if interest rates are rising or seem likely to rise in the near future.

Making the Piggyback Loan Decision

Piggyback loans serve a specific purpose: avoiding PMI while preserving cash and accelerating home purchase. They work best for borrowers who:

• Have 10-15% saved but not 20%
• Plan to pay down the second mortgage aggressively
• Value tax deductibility of mortgage interest
• Qualify for both mortgages comfortably within DTI limits
• Understand and accept the complexity of managing two loans

Before committing, model total costs over your expected holding period. Compare the piggyback structure against single-mortgage PMI, calculating when you'd remove PMI and total interest paid. Factor in tax deductions at your marginal rate.

For many borrowers in expensive markets or rising price environments, piggyback loans provide the optimal path to homeownership—avoiding PMI waste while getting into a home years sooner than saving for 20% down would allow. The key is understanding exactly what you're signing up for and managing both mortgages responsibly throughout the journey to 20% equity and eventual refinancing or second mortgage payoff.

Related Articles

• [Using a HELOC for an [Investment Property Down Payment](/blog/investment-property-down-payment): Smart Strategy or Risky Move?](/blog/heloc-for-investment-property-down-payment)
• Home Equity Explained: What It Is and How to Build It
• Investment Property Down Payment: Your Real Options in 2026