About Piggyback Mortgages

A piggyback mortgage is essentially a home equity line of credit — it’s considered a second mortgage. Yes, you can buy a home with a HELOC. It may sound complicated but it’s really not. To put it simply: you put 10.01% down on your home and then choose an amount that you would like to keep as your first mortgage. The difference between your first mortgage and the remaining amount up to 89.9% of the value would be your piggyback mortgage.

For example, you buy a home for $300,000. You have to put approximately $30,000 down. You could make your piggyback mortgage $30,000 and your first mortgage $240,000. Why would you do this? The short and skinny answer is to either avoid paying private mortgage insurance, or because you expect to receive a lump sum of money after closing and you plan to pay off the piggyback mortgage. This leaves only the remaining first mortgage and a lower total payment with refinancing. The key to remember is you have the flexibility to make the piggyback HELOC the amount you choose.

The Benefits of Avoiding PMI

Unless you are putting 20% down on your conventional mortgage, you will have to pay private mortgage insurance — or PMI — in some form or another. The rate of your PMI depends on how much you put down, your credit score, and whether the property you’re purchasing is a primary residence or a second home. With conventional financing you can purchase a home with as little as 3% down for a first-time home buyer or 5% for everyone else — but if you have 10% down you can utilize a piggyback mortgage and avoid PMI.

The reason you might want to avoid PMI is because you will continue to pay it as long as your loan-to-value ratio is above 78%. Your PMI does not reduce the principal — it’s literally insurance in the case of default to compensate the bank. You could instead use a home equity line of credit (HELOC) for the remaining 10% of the sales price on top of your 10% down payment to avoid PMI.

Making a separate payment on the HELOC, you can pay it down at your leisure with the option of paying only interest. Additionally, once it’s paid down or off, the HELOC is still available to access your equity if needed. At 78% LTV your PMI is required to be eliminated under the Home Owners Protection Act. There is usually a two-year minimum pay period for PMI even if you are paying extra principal down. Typically, just making your regular mortgage payment, you wouldn’t reach a 78% loan-to-value ratio until year 7 if you put 10% down. Having a piggyback instead of PMI gives you the ability to avoid the extra costs of PMI — especially when you plan to lower your LTV to 80% sooner than 2 years.

Using a Piggyback Mortgage Instead of a Bridge Loan

Another great use of the piggyback mortgage is — arguably — better than using a bridge loan. When you have a home you’re trying to sell but you need to purchase a new home before it sells, a piggyback mortgage is a great tool. With a piggyback you put 10% down and then you make your piggyback HELOC an amount that you think you will clear from the sale of your home.

So let’s say you are buying a $300,000 home. The plan is to get $100,000 from the sale of your current home. You put $30,000 down on the new home and then buy it with a $100,000 HELOC plus a $170,000 first mortgage. You continue to pay the first mortgage and the HELOC until your old home sells. You can then pay off your HELOC with the equity from the home you just sold. Doing it this way you only have to close once.

With a bridge loan, you would pay off your old existing mortgage and draw enough for a down payment on a new home, and then close on your new home. That’s two closings, with less flexibility because of the percentage you can typically draw from a bridge loan. Also, once the HELOC is paid off, it doesn’t disappear — you can still access it. The only potential hiccup is that you must qualify for both mortgages when using a piggyback instead of a bridge loan. But in my opinion, if you can, you wind up being ahead financially and with more flexibility. A piggyback allows you to structure your purchase accommodating the equity you will receive from your old home and then apply it toward your new home.

Piggyback vs. Jumbo Mortgage

A jumbo mortgage can come with restrictions that may make it more difficult for you to qualify for the home you want — and may make it more difficult to refinance in the future. With a piggyback HELOC mortgage you can go up to the conventional loan limit with your first mortgage and make the piggyback cover the difference. You still need your 10.01% down, and you’re able to avoid PMI.

Qualification Requirements

With a 680 credit score, a borrower can get a piggyback HELOC up to $500,000. On a second home the minimum mid-credit score is 700. The combined loan-to-value ratio (CLTV) is also 89.99% for a second home. For calculating debt ratios, the amount the borrower is using for a piggyback mortgage is amortized at a 30-year payment 2% over the start rate. The max back-end debt ratio is 45% for a primary residence and 43% for a second home.

How the HELOC Rate Works

The interest on your piggyback HELOC is based on the prime mortgage rate plus a margin, so it’s subject to fluctuate. The margin is calculated from the borrower’s credit score and the combined loan-to-value. It’s an interest-only payment — but if the principal isn’t reduced over 10 years, it’s possible for it to convert into a fully amortized payment.

How We Help You Set Up a Florida Piggyback

FAQ’s About Piggyback Mortgages

Structure Your Florida Piggyback the Right Way

Send us your scenario — purchase price, down payment, expected sale proceeds (if applicable), and FICO. We’ll model first mortgage + HELOC sizing options and tell you whether a piggyback or PMI is the smarter play. On weekdays we review applications within 24 hours or less.