What Is an 80-10-10 Piggyback Mortgage and How Does It Work?

80-10-10 Mortgage

What if you’ve just found the home of your dreams, but, unfortunately, you don’t have enough of a down payment to purchase that home? That’s where an 80-10-10 piggyback mortgage comes in.

Many homebuyers think that if they don’t have a large down payment for a home, they can’t buy one, and in most cases, that’s simply not true. Therefore, we are going to go over how you can use a piggyback mortgage to buy that home of your dreams without having a large amount of upfront money to do so.

What Is an 80-10-10 Mortgage?

An 80-10-10 mortgage is a piggyback mortgage. A piggy back mortgage is just what it sounds like. It’s one mortgage on top of another one. The first mortgage would be considered your primary mortgage with another mortgage on top of that, which is called an 80-10-10 piggyback mortgage, also commonly referred to as a second mortgage.

What Do the Numbers 80-10-10 Represent?

The term 80-10-10 when referring to a piggyback mortgage is broken down as follows:

  • 80 Percent – This is the number that reflects the percentage of the home’s value the first mortgage will cover. And this value must be less than or equal to 80% to avoid the PMI requirement, which we’ll talk about in a moment.
  • 10 Percent – This is the number that’s the percentage of the home’s purchase price that will be paid for via a piggyback mortgage.
  • 10 Percent – This number is the amount of money the homebuyer will need to pay as the down payment for the home. This 10% is not an official requirement and doesn’t have to be exact; however, this is what most people taking advantage of an 80-10-10 mortgage put down.

What Are The Benefits of an 80-10-10 Piggyback Mortgage?

“To avoid paying PMI on your monthly mortgage payments, plan to save-up for at least a 20% down payment.”

Many lenders require a 20% down payment on the home you want to purchase. However, there are other lenders who will approve your home loan without having to put 20% down, but they will usually require you to pay private mortgage insurance (PMI). The PMI is a fee that is added to your mortgage payment to protect the lender in the event your home ends up in foreclosure or if its value drops below what you originally borrowed. And that leads us to our next benefit of having a piggyback mortgage.

If you want to avoid having PMI added to your monthly mortgage payments for the life of your loan, you will have to make a down payment of 20% or more. However, if you don’t have or don’t want to make a 20% down payment on your new home, you can avoid doing so by taking out a second mortgage. The second mortgage can then be used towards your home’s down payment, thus eliminating the PMI requirement and potentially saving you thousands of dollars over the life of the loan.

The Pros and Cons of Having a Second Mortgage

There are plenty of pros and cons that come with the prospect of taking out a second mortgage. Therefore, we will break them down so you can use this information to make an educated decision about whether or not a second mortgage is right for you.

Pros:

  • An 80-10-10 piggyback mortgage will enable you to buy a larger home.
  • A second mortgage will help lower your monthly mortgage payments.
  • A piggyback mortgage will allow you to avoid paying a monthly PMI payment on top of your monthly mortgage payment.

Cons:

  • In order to qualify for an 80-10-10 mortgage, you must have good credit.
  • When utilizing a second mortgage, you will have to pay closing costs and all related fees on two mortgages versus one which will be more expensive.
  • The second mortgage will usually be at a higher interest rate.
  • PMI is sometimes tax-deductible; therefore, a piggyback mortgage could ultimately cost you more money because you will lose that deduction. Additionally, the interest on a second mortgage is also tax deductible depending on the amount of the loan; therefore, if your mortgage is large, you might not receive the full tax benefit. However, we are not licensed tax professionals so check with your tax consultant to determine if either of these scenarios are the case for your particular situation before making any final decisions.

The Bottom Line

Buying a home is different for everyone; therefore, you should talk with your real estate professional and your mortgage lender to determine whether or not the 80-10-10 piggyback mortgage makes the most sense for you and your particular financial situation. Because what’s right for one homebuyer, might not be right for another.

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