The Piggyback 80/10/10 loan was pretty popular before the 2008 housing crisis. However, once the market crashed, it was hard to get a loan, period, especially if you had problems with your credit. Now, however, the housing market is looking great again, and potential homeowners are looking at the Piggyback 80/10/10 loan once again. Below are five reasons you would want to use a Piggyback 80/10/10 loan for your purposes.
Piggyback Loans Eliminate PMI
The Piggyback 80/10/10 loan can actually eliminate Private Mortgage Insurance (PMI). The entire purpose of PMI is to ensure the lender is protected in the event you default on your loan. However, if you put 20% down payment; the Private Mortgage Insurance is not needed. Anything under 20% as a down payment is shown to have a high risk to be foreclosed. The second mortgage is considered as a part of your total down payment, which equates to 20% down.
Piggyback Loans are Cheaper than an FHA Loan
Most have heard that Federal Housing Administration (FHA) loans are the cheapest and easiest route to go. It is true, they are a bit easier to get because lenders use a more relaxed credit system to approve you for an FHA loan. So besides avoiding the additional monthly cost of PMI insurance, there are two other fees to consider:
- The FHA charges a mortgage insurance premium (MIP). This is a one-time fee that equates to about 1.75% of the original loan amount.
- The FHA also charges a monthly fee for every $100,000 borrowed.
With these three instances, you could be paying a few hundred dollars more with an FHA loan than a Piggyback 80/10/10 loan.
You Can Afford a Larger Loan
A Piggyback 80/10/10 loan enables people to buy the large home that they want that they otherwise would not have been able to afford. Because you will have two separate mortgage loans, these two combined can equate to what you really want in your loan amount. There is a tax incentive with this as well. You can deduct the interest on your second mortgage up to $100,000.
You Do Not Need a Large Down Payment
Since you are going to put down 10% cash and the remaining portion of your loan is via the second mortgage, you are saving any other cash you may have had. You do not have to have a large down payments such as with a conventional loan.
You are Not Stuck with the Second Mortgage
You can get out of a Piggyback 80/10/10 loan and not be stuck with the second mortgage throughout the duration of your first loan. You can prepay this loan off at any time. However, do check with your lender to see if there are any early loan payoff penalty’s you would be subject to.
Above are three reasons a Piggyback 80/10/10 loan may be an attractive option for you to pursue. You can save on interest, private mortgage insurance, and afford a larger home.