Piggyback Loans Fall From Grace
We usually define a “conventional” mortgage as financing with 20 percent down. Since most people don’t happen to have 20 down much less 20 percent plus closing costs, there has always been a market for mortgages that somehow require fewer dollars up front. The way you get loans with less down is to find a financially-strong co-signer, someone or something that will bail out the lender if you can’t repay your mortgage. Loans guaranteed by the VA, FHA or private-mortgage insurance (MI) all allow borrowers to buy with little or nothing down.
But — and you knew this was coming — insurance requires an insurance premium, so to buy with little down AND without the cost of insurance, borrowers and lenders during the past few years increasingly turned to “piggyback” financing. With piggyback financing (commonly known as [tag]piggyback loans[/tag]) you get a first loan for 80 percent of the purchase price and a second loan for 10-, 15- or 20-percent of the home’s value. The result is little or nothing down, plus no cost for mortgage insurance.