When you’re looking at loan types, there are some questions that come up fairly often.
In this post, we’ll be going over some of the most common questions that people have about piggyback loans.
If you find yourself interested in learning more, then you’ll want to check out the main article about the loan, the pros and cons this loan type, and more information about the loan limits that are available with this loan.
In addition, you might not be sure after reading this article that the piggyback loan type will be good for you, but I have a list of reasons why the loan type might be perfect for you and your situation.
If after reading all of this information you are interested in getting started with this loan type, you can always contact me and I will help you get started on not only getting the loan you need but looking for the home you want as well.
Here's a quick rundown of our list:
- What is the 80-10-10 Split?
- How Does a Home Equity Line of Credit Work?
- Is There PMI with this Loan Type?
- Why is the Credit Score Necessary So High?
- Can I Use Gift Funds to Pay for the Down Payment?
- What Kind of Home Can I Get with this Loan?
- Are There Other Versions of the Piggyback Loan?
What is the 80-10-10 Split?
This is the most basic form of the piggyback loan.
The amount of the loan will go three ways.
The majority of the loan is the 80% and that will be put into a typical fixed rate loan with a 30-year term.
The main part of the loan will be limited to $424,100.
However, even though this part is limited, you will be able to do more with the next 10% of the line.
That extra 10% is going to be a home equity line of credit which is also known as HELOC.
This is technically a second loan and you might need separate paperwork for, but it can be helpful with this loan.
The last 10% is the down payment that you have to pay when you get this loan.
How Does a Home Equity Line of Credit Work?
A home equity line of credit is essentially like a credit card.
However, in this loan, you will start with a line of credit that is already maxed out.
By paying off the amount of the line of credit, you will be able to use the amount of the line to make purchases for other things.
Often people will use the line of credit when they are working on renovating the home.
If the line of credit has been completely paid off, you won’t earn interest on having it open, so many people like to keep the line of credit open even after they have paid it off.
Is There PMI with this Loan Type?
There is no PMI with this loan type.
This can be a reason that many people get this particular loan type.
The reason why this loan is able to skip the PMI is because of the way that the loan is structured.
Even though you technically have two loans to your name with the piggyback loan, the home equity line of credit actually counts as part of your down payment for the larger loan.
So this means that your loan technically has a down payment of 20%.
PMI typically applies to loans that have a down payment that is less than 20%.
Since this loan is at 20%, you won’t have to worry about the PMI on this loan.
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Why is the Credit Score Necessary So High?
Having a high credit score means that you will be more likely to pay off the loans and debts that you accumulate.
While this loan is a great thing to get, there is a little bit more risk associated with the loan for a lender because of how the loan is structured.
By upping the credit score that is necessary to qualify, the lender protects themselves by making sure that, at least on paper, the person they lend the money to is going to give back the money.
While it may be a little bit annoying for some people that are trying to find a loan, this makes sure that you don’t get into something that you can’t handle and also makes sure that the lender is protected.
If the credit score is too high for you, there are many loan types that need credit scores that are lower than 680, but they won’t have the same benefits as the piggyback loan.
Can I Use Gift Funds to Pay for the Down Payment?
While you are typically able to use gift funds to pay for the down payment of a loan, this can actually be something that disqualifies you for this loan.
The lender wants to ensure that you’re going to be able to pay the loan.
If you’re using gift funds to pay for the down payment, then this may be a cause for concern for your lender.
So while you might be able to, you will want to discuss this with your lender before you decide to do so.
It may be something that you will want to avoid considering just to make sure that you can qualify for the loan.
If you are worried about the down payment, then there are other loans that have much lower down payments that are available out there that you may be able to take into consideration.
What Kind of Home Can I Get with this Loan?
There aren’t real limits on the home that you can get with this loan.
You will have a monetary limit on what you can get, but there aren’t any limits on the kinds of homes that you can get with the loan.
This is both good and bad for the San Diego area.
While your imagination might be going everywhere, you will have to keep in mind that the main portion of the loan, the 80%, is limited to $424,100.
The extra amount of money will probably get you closer to the average cost of a home in San Diego.
So with that limit in mind, you will have to try and keep your ideas for your home just a little bit limited.
Are There Other Versions of the Piggyback Loan?
There are other versions of the piggyback loan.
The 80-10-10 split is the most common one.
But there is another common version which is the 75-15-10.
Obviously this means that you have a larger line of credit and a little less in the main loan.
There are pros and cons to doing it this way, but the 80-10-10 is the safer one and the one that most people decide to go with.
If you find yourself interested in learning more, then you’ll want to check out our main article, the pros and cons about the loan, the answers to the most common questions about this loan type, 5 reasons why, and more information about the loan limits that are available with this loan.
What do you think?
I would love to hear your comments below - or cal/text me at (760) 297-4539.
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