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An 80/20 mortgage loan, also known as a piggyback loan or 100% financing, is a type of mortgage that allows you to purchase a home with little to no down payment while also avoiding Private Mortgage Insurance (PMI). This financing structure involves taking out two separate loans simultaneously: a first mortgage for 80% of the home's purchase price and a second mortgage for the remaining 20%. While market conditions can influence their availability, these loans remain a popular option for eligible homebuyers.

What Are 80/20 Mortgage Loans?

An 80/20 mortgage loan is structured as two distinct loans that close at the same time. The "80" refers to the primary mortgage, which covers 80% of the home's purchase price. The "20" refers to a second mortgage, typically a home equity loan or a Home Equity Line of Credit (HELOC), that covers the remaining 20%.

This dual-loan approach allows you to finance 100% of the home's value, or very close to it, without making a traditional 20% down payment from your own funds. While the second mortgage usually carries a higher interest rate than the first, the overall cost can sometimes be lower due to the absence of PMI.

How Do 80/20 Loans Help You Avoid PMI?

In the United States, if your down payment on a conventional mortgage is less than 20% of the home's purchase price, lenders typically require you to pay Private Mortgage Insurance (PMI). PMI protects the lender in case you default on your loan.

With an 80/20 mortgage, the first mortgage is for 80% of the home's value, which is the threshold at which PMI is usually no longer required. By financing the remaining 20% with a separate second mortgage instead of a smaller down payment, you effectively bypass the PMI requirement. This can lead to lower monthly housing costs compared to a single loan with PMI.

Advantages and Disadvantages of 80/20 Mortgages

Like any financial product, 80/20 mortgage loans come with their own set of pros and cons.

Advantages