How Does a Piggyback Loan Work?

Last updated 11/10/2025 by

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Summary:

A piggyback loan, or 80/10/10 mortgage, helps homebuyers avoid PMI and jumbo loan limits by combining two loans. Here’s how it works, who qualifies, and why this financing strategy can save money for certain borrowers.

A piggyback loan lets you finance a home using two mortgages instead of one. The goal is to keep your primary loan at or below 80% loan-to-value (LTV), which helps you avoid private mortgage insurance (PMI) and sometimes bypass jumbo loan rules.

This strategy — often called an 80/10/10 loan — can be a smart option for buyers with strong credit and limited down payments.

How a Piggyback Loan Works

Here’s how an 80/10/10 piggyback loan is structured and how it helps you save money:

First mortgage (80%): Covers most of the home’s value and stays within conforming loan limits.
Second mortgage (10%): Acts as a smaller “piggyback” loan or HELOC to cover part of your down payment.
Down payment (10%): The buyer contributes the remaining amount in cash to reach the full purchase price.
PMI avoidance: Because the first mortgage is capped at 80% LTV, you avoid paying private mortgage insurance.

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Example of an 80/10/10 Piggyback Loan

Let’s say you’re buying a $500,000 home and don’t want to pay PMI. Here’s how your financing could break down:

Component	Amount	Loan Type
First Mortgage	$400,000 (80%)	Conventional fixed-rate loan
Second Mortgage	$50,000 (10%)	Home equity loan or HELOC
Down Payment	$50,000 (10%)	Cash from borrower

This setup keeps your first mortgage under the 80% limit, allowing you to skip PMI. You’ll make two payments each month — one for each loan — until the second is paid off or refinanced.

Smart Move: Paying off the second loan early can reduce your total interest cost and free up monthly cash flow faster.

Why Homebuyers Use Piggyback Loans

Homebuyers often choose piggyback loans when they want to:

Avoid PMI: Save on monthly mortgage insurance costs that can add up over time.
Stay below jumbo limits: Keep your first loan within conforming loan limits for easier approval.
Make a smaller down payment: Buy a home with 10% down instead of 20%.
Increase flexibility: Use the second loan as a short-term bridge until you build more equity.

Pros and Cons of Piggyback Loans

Like any mortgage strategy, piggyback loans come with trade-offs. Here’s what to expect:

Who Qualifies for a Piggyback Loan?

Piggyback loans are typically reserved for borrowers with solid financial profiles. Lenders will usually require:

Credit score: 700 or higher for best rates
Debt-to-income (DTI) ratio: 43% or lower
Stable income: Two years of verifiable earnings
Down payment: 5–10% minimum
Cash reserves: Two to six months of mortgage payments in savings

When Does a Piggyback Loan Make Sense?

A piggyback loan might be the right move if you:

Have strong credit but limited cash for a full 20% down payment
Want to avoid PMI and keep monthly costs lower
Live in a high-cost area near conforming loan limits
Plan to pay off or refinance the second loan within a few years

Pro Tip: If you expect to stay in your home long-term, run the numbers to compare the total interest from two loans versus one mortgage with PMI. The difference can be surprising.

Alternatives to Piggyback Loans

FHA Loan — 3.5% down, flexible credit, but includes ongoing mortgage insurance.
USDA Loan — 0% down and low rates for qualifying rural borrowers.
VA Loan — 0% down and no PMI for eligible service members and veterans.
Conventional Loan — Simplified structure with removable PMI at 20% equity.

Bottom Line

A piggyback loan can be a smart way to avoid PMI and manage high home prices — especially if you have strong credit and plan to pay off the second loan quickly. Just be sure to compare total costs, including interest on both loans, before deciding if it’s right for you.

Key takeaways

A piggyback loan combines two mortgages to help avoid PMI and jumbo limits.
The 80/10/10 setup uses two loans and a 10% down payment.
It’s best for strong-credit borrowers who can manage two payments and plan to pay off the second loan early.
Always compare total loan costs versus a single mortgage with PMI before choosing.

What Next

Compare lenders that offer 80/10/10 mortgages and see how a piggyback loan stacks up against a single conventional mortgage with PMI.

Compare top-rated lenders on SuperMoney’s Best Piggyback Loans page to find the most competitive rates and terms for your next home purchase.

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