If you’re thinking of getting a mortgage loan for your own home, then you might not have heard about the piggyback loan type.
The loan type might be a little bit confusing at first, but I will be going through some of the basics with you to ensure that you understand what’s going on with this loan type.
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, and more information about the loan limits that are available with this loan.
Here's a quick rundown of our list:
- The Origin of the PiggyBack Loan
- Why It is Useful
- Why It Might Not Be Useful
- Avoiding PMI
- Qualifying for a PiggyBack 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.
The Origin of the PiggyBack Loan
The piggyback loan is actually made up of two loans.
There are multiple ways that the loan can be set up, but the most common way to see this loan structured is in the 80-10-10 setup.
80% of this loan will be a typical fixed rate mortgage loan.
10% of this loan will be the down payment.
And that other 10%?
That 10% is a second loan that is considered a home equity line of credit also known as a HELOC.
This setup is a little unusual and hasn’t been used for a while because of the drop in home value between the years of 2007 and 2010.
However, now that things are changing again, some people are deciding that this loan type is actually going to work with their setup.
Why It is Useful
The best part of this loan is that you will be able to borrow up to $510,400 with the first loan that you get.
After this, you will be able to get the next 10% as a HELOC.
While getting some of the value of the home as a HELOC may not sound that great for some people, it can be incredibly useful.
HELOC used in this way will start out as a maxed out line of credit.
As you make payments on it, you will then free up credit that you can use on other things.
This option can be incredibly helpful if you are going to need credit to use on other things shortly down the road.
Even after you have managed to get rid of all the credit on the line, then you will be able to keep it open for things such as redoing parts of the house or financing something else.
As long as the HELOC doesn’t have any money on it, then you won’t be charged interest on it, so it might be extremely useful to leave the line open after you have paid it all off.
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Why It Might Not Be Useful
While this loan type can be incredibly helpful for planning your finances for the future, it also means that you won’t be able to get a lower down payment.
You will have to have a 10% down payment on this loan type.
This may be harder for people that don’t have the cash to get to this down payment.
You will also find that this loan type is hard to qualify for.
You will need a higher credit score of around 680 in order to qualify for this loan.
This can mean that people that are struggling with debt won’t be able to qualify because of how the debt messes with your credit score.
There are many other loan types that have lower credit score qualifiers and lower down payments.
So if you’re looking for something that will help more at the moment that you are getting a house, then you might not want to look into this loan.
This loan is better for planning out your future.
Avoiding insurance payments on your mortgage loan is probably something that you have been looking for when you’ve been looking at loan types.
PMI payments will help protect the lender in case that you don’t make a payment.
PMI makes sure that you and the lender are safe.
The amount that you pay will also depend on your loan and your credit score.
The range of price will largely depend on the credit score.
If it is higher, then you’ll have a lower premium to pay.
But you will also pay depending on the amount of the loan.
It will also depend on how high or low your down payment is.
When it comes to getting a piggyback loan, a lot of people get this loan type just to avoid as much of the PMI payments as possible.
This isn’t a bad thing and it also isn’t a good thing.
Because of the combination of the second loan and the down payment, your first loan (the 80%) is often considered to have a 20% down payment.
PMI usually applies to loans that have less than 20% down payment.
So even though you are paying only 10%, you will be able to get out of the loan payments entirely.
Qualifying for a PiggyBack Loan
As we mentioned before, the biggest roadblock to getting this loan is the fact that it can require a credit score of roughly 680.
You may also find some issues if you have an irregular income.
This can be a really negative point if you are a freelancer.
Even if you’re regularly making quite a bit of money, then you might not be able to get the most out of this loan.
As well, you might not be able to get this loan if you are intending to use a gift to pay for the 10% down payment.
This can really complicate the process of getting the loan.
Otherwise, you will have to work with the lender that you want to get the loan from.
This loan is a little bit harder for individuals that have lower credit to find a loan like this, but there are tons of options out there.
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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