Piggyback Loans are Back




This year, the FHFA announced that Fannie Mae and Freddie Mac are expanding conforming loan limits to $548,250 up from $510,400. We’re now coming up on the fifth consecutive year that the FHFA has expanded loan limits for conforming loans—and that’s because home values are rising.


But why would this matter to you, if you’re in the market for a home that’s worth a little over $1 million?


The answer is: piggyback loans.


Piggyback loans are when people take on two mortgages instead of one. While you can take on a single mortgage to pay for a million dollar home—which are called jumbo loans—there are additional benefits to choosing a piggyback loan.


Loan Requirements Aren’t as Strict for Piggyback Loans


Jumbo loans come with several hoops that people have to jump through. To name a few:

  • you’ll need twelve months of cash reserves

  • you’ll have to pay mortgage insurance

  • your FICO Score will have to be higher than average—think 720 or above.

  • You’ll also need to make a twenty percent down payment, and;

  • a debt to income ratio that’s under 43%.

Are you sweating bullets yet? Well, don’t be! While jumbo loans might be the way to go for some, piggyback mortgages are perfect for people who are looking to cut costs on huge investment properties.


You Won’t Have to Worry About Private Mortgage Insurance


Private Mortgage insurance can only be applied to 80% of a loan amount or higher. With two mortgages, you’ll have two loan amounts of 50% or slightly less—so neither of your mortgages will make you pay extra for private mortgage insurance.


Depending on your FICO score and finances, PMI can either be a huge pain in the neck or just an unavoidable fact of mortgages for home buyers looking to make a smaller down payment. With piggyback loans, you won’t have to worry about this added cost, which could be a hefty price tag on loan amounts that are $548,250 or below.


You’ll Save Money at Closing


Overall, you’ll get pre-approved much faster for a piggyback loan than a jumbo. Piggyback loan requirements give home buyers a little more breathing room. Contrary to popular belief, you won’t have to get pre-approved twice just because you’re taking on two mortgages. The pre-approval for one loan will be enough to justify the other—they’re a package deal after all.


Unlike jumbo loans, you can get away with a 10% down payment with a piggyback loan. And best of all—you won’t have to worry about paying for closing costs on your second mortgage. That’s right! You’ll only have to pay for the closing costs on one of your mortgages. Piggyback loans essentially break up a million dollar loan into two smaller chunks. This decreases your closing costs by about half.


Can you think of a better deal?