Piggyback HELOC: A Smart Home Financing Strategy
Buying a home can feel overwhelming, especially when trying to avoid private mortgage insurance (PMI) or make homeownership more affordable. One creative financing option is a Piggyback HELOC (Home Equity Line of Credit), which allows buyers to take out two loans instead of relying solely on a traditional mortgage.
What Is a Piggyback HELOC
A Piggyback HELOC is a home financing strategy where buyers secure:
A primary mortgage for most of the home’s value and,
A secondary HELOC to cover the remaining balance
Instead of making a large down payment, the HELOC acts as a second loan, helping buyers avoid PMI, reduce upfront costs, and increase financial flexibility.
How Does It Work?
The most popular Piggyback HELOC structure is the 80/10/10 loan, where:
– 80% of the home’s price is financed via a traditional mortgage
– 10% is covered through a HELOC
– 10% is paid as a down payment
Another variation is the 80/15/5 loan, in which buyers put down 5% and use a HELOC to cover 15% of the purchase price.
Benefits of a Piggyback HELOC
1. Avoiding Private Mortgage Insurance (PMI)
PMI can add hundreds to monthly payments, making homeownership more expensive. Using a Piggyback HELOC to reach the 20% threshold eliminates this extra cost.
2. Lower Down Payment & Upfront Costs
Instead of saving for a large down payment, buyers can enter the market faster by using HELOC funds to cover part of the purchase price.
3. Flexible Loan Repayment
HELOCs typically offer variable interest rates, meaning borrowers can access funds as needed, making monthly payments more manageable.
4. Easier Access to Competitive Housing Markets
With rising home prices in competitive real estate markets, using a Piggyback HELOC allows buyers to secure homes without waiting to save a full 20% down payment.
Potential Drawbacks
1. Higher Interest Rates on HELOCs
Unlike fixed-rate mortgages, a HELOC has variable interest rates, meaning loan costs can increase over time.
2. Managing Two Loans Can Be Complex
Borrowers must balance monthly payments for both their mortgage and HELOC, requiring careful financial planning.
3. Refinancing Challenges
Many lenders require homebuyers to pay off both loans before qualifying for a mortgage refinance. This can limit future loan options.
Who Should Consider a Piggyback HELOC?
✅ Buyers wanting to avoid PMI and reduce monthly costs
✅ Homebuyers in high-priced real estate markets seeking lower upfront expenses
✅ Individuals with strong credit scores looking for flexible loan repayment options
Final Thoughts
A Piggyback HELOC can be a smart home financing strategy, offering lower monthly payments, flexible borrowing, and the ability to purchase a home faster. While this approach has potential risks, such as variable interest rates, it remains an effective way to bypass PMI and secure a property without a large down payment.