What Is a Piggyback Loan (80/10/10) and When Does It Make Sense?
For many homebuyers, coming up with a 20% down payment can feel like one of the biggest obstacles to purchasing a home. At the same time, many buyers want to avoid paying Private Mortgage Insurance (PMI), which is typically required when putting less than 20% down on a conventional loan.
One financing strategy that can help in certain situations is a piggyback loan, often called an 80/10/10 mortgage. While piggyback mortgages aren't as common as they once were, they can still be a useful tool for qualified borrowers looking to reduce costs or improve their financing options.
If you've been researching terms like how to avoid PMI, 80/10/10 mortgage, piggyback loan pros and cons, or best mortgage options with 10% down, this guide will explain everything you need to know.
Start With Understanding Your Financing Options
Before deciding whether an 80/10/10 mortgage is the right strategy, it's important to understand what financing options may actually be available to you. Factors such as your credit score, income, debt-to-income ratio, available cash for a down payment, and overall financial profile will all influence the loan programs for which you qualify.
One of the first steps in the homebuying process is determining your borrowing power. Many buyers use the terms pre-approval and pre-qualification interchangeably, but they are not the same thing. A pre-qualification provides a general estimate of what you may be able to afford, while a pre-approval involves a more detailed review of your finances and can carry more weight when making an offer on a home.
If you're still in the early stages of the buying process, our guide on the difference between pre-approval and pre-qualification can help you understand what lenders look for and how to prepare before exploring financing options like a piggyback loan.
What Is a Piggyback Loan?
A piggyback loan is a home financing strategy that combines two mortgages and a down payment to purchase a property.
The most common structure is:
- 80% first mortgage
- 10% second mortgage
- 10% down payment
This arrangement is why it's commonly referred to as an 80/10/10 loan.
For example, let's say you're purchasing a $400,000 home:
| Financing Component | Amount |
|---|---|
| First Mortgage (80%) | $320,000 |
| Second Mortgage (10%) | $40,000 |
| Down Payment (10%) | $40,000 |
| Total Purchase Price | $400,000 |
Instead of taking out one mortgage for 90% of the home's value and paying PMI, you split the financing into two loans. The second mortgage "piggybacks" on the first mortgage, which is where the term piggyback loan comes from.
How Does a Piggyback Loan Work?
The first mortgage typically functions like a standard conventional loan with either a fixed or adjustable interest rate.
The second mortgage may be structured as:
- A fixed-rate home equity loan
- A home equity line of credit (HELOC)
- A shorter-term second mortgage
The lender evaluates both loans when determining whether you qualify. Because the primary mortgage only represents 80% of the home's value, the lender views it as less risky and generally does not require PMI.
One factor that can significantly affect whether a piggyback loan makes sense is the interest rate attached to each loan. While avoiding PMI can save money, the second mortgage in an 80/10/10 structure often carries a higher rate than the primary mortgage. Understanding how mortgage rates are determined—including your credit score, loan term, property type, and broader economic conditions—is critical. For a detailed explanation, see our guide on how mortgage rates are actually determined.
Why Do Homebuyers Use an 80/10/10 Mortgage?
The primary motivation is avoiding PMI. Many buyers search for strategies on how to avoid PMI with less than 20% down, and a piggyback mortgage is a common solution. Depending on your loan amount, avoiding PMI could save hundreds of dollars per month.
Other benefits include:
- Lower upfront cash requirement
- Preserved savings for renovations, emergencies, or furniture
- Potential for more purchasing power in higher-cost markets
Understanding Mortgage Insurance and Why It Matters
Mortgage insurance can be confusing because different loans require different programs:
- PMI – Conventional loans for less than 20% down
- MIP – FHA loans
- VA Funding Fee – VA loans
An 80/10/10 loan can help avoid PMI on conventional financing. To understand the differences, check out our guide on understanding mortgage insurance: PMI vs. MIP vs. VA Funding Fee.
Pros of a Piggyback Loan
- Avoid PMI – Significant monthly savings for conventional loans
- Lower cash requirement – Only 10% down instead of 20%
- Flexibility – Second mortgage can sometimes be paid off faster
- More purchasing power – Helpful in high-cost housing markets
- Preserve reserves – Keep cash for other priorities
Cons of a Piggyback Loan
- Two monthly payments
- Higher interest rates on the second mortgage
- More complex qualification requirements
- Potentially higher closing costs
- Savings depend on market conditions
Who Should Consider a Piggyback Loan?
A Piggyback Loan May Be a Good Fit If You:
- Have strong credit
- Have 10% available for a down payment
- Want to avoid PMI
- Have stable income
- Plan to stay in the home for several years
A Piggyback Loan May Not Be Right If You:
- Qualify for very low PMI
- Have limited cash reserves
- Expect to move soon
- Struggle to qualify for multiple loans
Real-World Examples
Example 1: Avoiding PMI
A buyer purchases a $500,000 home with:
- $50,000 down (10%)
- $400,000 first mortgage (80%)
- $50,000 second mortgage (10%)
Without the piggyback loan, PMI might cost $150–$300 per month, depending on credit and loan structure.
Example 2: When PMI Is Actually Cheaper
If a borrower qualifies for very low PMI, the total monthly cost may be lower than carrying a second mortgage, highlighting the importance of running side-by-side scenarios.
Alternatives to a Piggyback Loan
- Conventional Loan with PMI – Sometimes cheaper than two mortgages
- Larger Down Payment – Reduces monthly payments and interest
- FHA Loans – 3.5% down, MIP applies
- VA Loans – No down payment or PMI for eligible borrowers
- USDA Loans – Low- or no-down options in rural areas
For more context, see Conventional vs. FHA vs. VA vs. USDA loans to compare features and requirements.
80/10/10 vs 80/15/5 Comparison
| Loan Structure | First Mortgage | Second Mortgage | Down Payment |
|---|---|---|---|
| 80/10/10 | 80% | 10% | 10% |
| 80/15/5 | 80% | 15% | 5% |
This variation reduces upfront cash but may require stricter qualification.
Questions to Ask Before Choosing a Piggyback Loan
- What is my total monthly payment for both loans?
- How much would PMI cost on a conventional loan?
- What are the interest rates for each loan?
- How long do I expect to stay in the home?
- What are the total closing costs?
- How quickly can I pay off the second mortgage?
When comparing lenders, see our guide on what to look for when comparing mortgage options from different lenders.
Looking Beyond the Down Payment: Other Ways to Reduce Mortgage Costs
Some buyers also consider:
- Biweekly mortgage payments – Can reduce interest and shorten loan term. Learn more in should you consider biweekly mortgage payments.
- Escrow management for taxes and insurance. See our guide on escrow accounts.
Final Thoughts
A piggyback loan, or 80/10/10 mortgage, can be an effective strategy to avoid PMI while making less than a 20% down payment. It may provide lower upfront cash requirements, preserve reserves, and give flexibility in higher-cost markets.
However, the strategy comes with trade-offs, including higher interest rates on the second mortgage, multiple payments, and additional closing costs. Before making a decision, compare all available options, including conventional loans with PMI, FHA, VA, or USDA financing. Consulting a mortgage professional can help you evaluate the best strategy for your financial goals and ensure you understand all costs involved.
Every homebuyer's situation is different. The mortgage professionals at Bluefield Mortgage Group can help you compare piggyback loans, conventional mortgages, FHA loans, VA loans, USDA loans, and other financing options to determine which program best fits your goals. If you're considering buying a home in South Carolina, North Carolina, or surrounding areas, reach out to Bluefield Mortgage Group for personalized guidance and financing solutions.
Frequently Asked Questions About Piggyback Loans:
What is an 80/10/10 loan?
A mortgage structure with 80% first mortgage, 10% second mortgage, and 10% down payment.
How do piggyback loans avoid PMI?
The first mortgage stays at 80% of the home's value, below the PMI threshold.
Who qualifies for a piggyback loan?
Typically, buyers with strong credit, stable income, and at least 10% available for a down payment.
Is a piggyback loan cheaper than paying PMI?
Sometimes—but it depends on second mortgage interest rates, closing costs, and loan term.
Can first-time buyers get a piggyback loan?
Yes, if they meet lender qualifications.
What are the risks of a piggyback mortgage?
Higher second mortgage rates, two monthly payments, and more complex qualification.
Sources: Fannie Mae, Federal Housing Administration, U.S. Department of Veterans Affairs, Consumer Financial Protection Bureau
