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- An 80-10-10 loan is a piggyback loan, which means that you take out two mortgages, one big and one small.
- Your first mortgage is for 80% of the purchase price, the second one is for 10%, and you'll make a 10% down payment.
- An 80-10-10 loan is a tool for sidestepping private mortgage insurance without putting 20% down.
Affording a down payment on a home can be difficult, especially if your goal is to put 20% down to avoid paying for private mortgage insurance.
An 80-10-10 loan could give you the best of both worlds: Make a down payment of less than 20%, but you still don't have to pay for PMI. But there are drawbacks to this approach. Here's what you should know about these loans
What is an 80-10-10 loan?
Definition and structure of the loan
An 80-10-10 loan is a financing structure where you get a mortgage to buy a home and another loan to cover part of your down payment. It's a common type of piggyback loan, which means that you actually take out two mortgages — the smaller one piggybacks on the bigger one.
Explanation of the 80% and 10% components
Here are what the numbers mean in an 80-10-10 loan:
- Take out a mortgage for 80% of the home price
- Take out a second mortgage for 10% of the home price
- Make a 10% down payment on the home from your own funds
How the 80-10-10 loan works
If you have 10% for a down payment, you would normally take out one loan for 90% of the purchase price with a traditional mortgage. With an 80-10-10 loan, you take out two mortgages that together make up 90% of the home price.
The first mortgage will be a traditional first mortgage. The second one will be a home equity loan or home equity line of credit. Instead of making one mortgage payment each month as you would with a traditional mortgage, you will make two separate mortgage payments.
An 80-10-10 loan provides a loophole that allows you to steer clear of private mortgage insurance. Usually, you have to pay for PMI if you have to borrow more than 80% of the purchase price. Taking out two mortgages instead of one helps you save money each month by avoiding PMI.
Example of an 80-10-10 loan
Let's compare a traditional mortgage with an 80-10-10 loan. In this example, you're buying a $400,000 home, and you have $40,000 (10%) for a down payment. With the 80-10-10 loan, you're taking out a 30-year mortgage as the first mortgage and a 15-year home equity loan as the second mortgage.
| Traditional mortgage | 80-10-10 loan | |
| Down payment | $40,000 | $40,000 |
| First mortgage amount | $360,000 | $320,000 |
| First mortgage interest rate | 3% | 3% |
| Second mortgage amount | N/A | $40,000 |
| Second mortgage interest rate | N/A | 4% |
Here are the details of your monthly payments with each option, assuming that the private mortgage insurance payment is around 1% of your original mortgage amount each year.
| Traditional mortgage | 80-10-10 loan | |
| First mortgage payment | $1,517.77 | $1,349.13 |
| Second mortgage payment | N/A | $295.88 |
| Private mortgage insurance | $300 | N/A |
| Monthly total | $1,817.77 | $1,645.01 |
Keep in mind, these would be your monthly payments until either a) you gain more equity in your home and no longer have to pay for PMI with your traditional mortgage, or b) you pay off your home equity loan and you only have one monthly mortgage payment.
If you're considering taking out an 80-10-10 loan, consider which option would cost you more, both monthly and in the long run.
Advantages of the 80-10-10 loan
Avoidance of PMI
Private mortgage insurance (PMI) can cost up to a few hundred dollars each month. An 80-10-10 loan is a tool for sidestepping PMI, but consider whether PMI would be more or less expensive than your second mortgage payment through the piggyback loan.
Avoid taking out a jumbo mortgage
The FHFA sets a limit on how much you can borrow with a conforming mortgage, and if you need to borrow more, you'll apply for a jumbo mortgage. Jumbo mortgages are harder to qualify for compared to conforming mortgages, and they come with higher mortgage rates.
It's useful if you're selling your home
Are you trying to sell your home and move into a new one? It might be hard to afford a 20% down payment if your original home hasn't sold yet. This loan can help you afford to buy a home before your first one sells, without paying for PMI.
Potential tax deductions
If you itemize your deductions, you could get a tax deduction on the interest paid both on your primary mortgage and the loan you used to cover your down payment using the mortgage interest deduction.
Risks and considerations
Higher interest rates on the second mortgage
Home equity loan rates and HELOC rates are higher than interest rates on first mortgages.
Additionally, HELOCs often come with variable interest rates. This means your rate can change, causing your monthly payment to go up or down.
Managing two mortgages
You'll pay closing costs on two mortgages, not just one. Then, you'll have to pay a monthly payment on both of your loans.
Refinancing could be hard
Ask your lender or lenders about future refinancing options before you get an 80-10-10 loan. Refinancing with two mortgages can be tricky, especially if you have each mortgage with a different lender.
Qualifying for an 80-10-10 loan
Credit requirements
You're likely going to need a strong credit profile to qualify for an 80-10-10 loan, including a credit score that's at least in the 700 range.
Debt-to-income ratio considerations
You'll need to be able to afford both mortgage payments without pushing your debt-to-income ratio too high. This is how much you pay in debt each month relative to your gross monthly income. Ideally, your DTI should be below 36%.
Alternatives to the 80-10-10 loan
If you don't like the idea of making two mortgage payments every month, you have options other than taking out an 80-10-10 loan.
Bridge loan
Are you considering an 80-10-10 loan to finance the down payment on your new home while you wait for your current one to sell? You might prefer a bridge loan instead.
A bridge loan is a short-term home loan that helps you bridge the gap between when you buy your new home and when the finances from selling your original house come in. You will need a 20% down payment, though. Your choice between an 80-10-10 loan and a bridge loan will probably come down to how much you have for a down payment.
Traditional mortgage with PMI
You may just want to bite the bullet and pay for PMI, especially if PMI payments will be less than second mortgage payments. With a conforming loan, you can put as little as 3% down with PMI.
Your PMI rate is determined in part by your credit score, so if you have a great score, you might not pay as much as you think. You can also cancel PMI once you reach 20% equity.
Buy a less expensive home
If you're trying to decide between a jumbo mortgage and 80-10-10 loan, you might want to buy a home that costs less. That way, you can qualify for a regular conforming mortgage rather than take on even more debt.
This is also a good option if your motivation for getting an 80-10-10 loan is to get out of PMI. By buying a less expensive home, you may be able to afford a 20% down payment.
Larger down payment
If you have the funds or can wait to buy a house until you have more saved, you could opt to make a larger down payment if your goal is to avoid private mortgage insurance.
Government-backed loan programs
Government-backed mortgages come with low or no down payments and low rates:
- FHA loans allow 3.5% down payments, though you will pay for upfront and annual mortgage insurance with these loans
- USDA loans require no down payment. They come with an upfront and annual guarantee fee, which is similar to mortgage insurance
- VA loans require no down payment and no mortgage insurance. You'll only need to pay an upfront funding fee, which can be financed into the loan
80-10-10 loans FAQs
With an 80-10-10 loan, you're only borrowing 80% of the home's value on your primary mortgage, so you won't need to pay PMI.
An 80-10-10 loan allows you to avoid PMI without having to solely tap into your own funds for a large down payment.
You might like an 80-10-10 loan if you want to avoid PMI or you need to borrow a large sum but don't want to get a jumbo loan.
An 80-10-10 loan is risky because you'll be taking on two mortgage payments, and the second mortgage will have a higher interest rate.
Without an 80-10-10 loan, you'll need to bring more cash to the table to avoid PMI. Alternatively, if you qualify for a VA loan, you can also get 100% financing with no mortgage insurance.
