Saving for a full 20% down payment can delay homeownership for many buyers. The 80/10/10 loan, known as a piggyback loan, offers an alternative that reduces upfront cash requirements while bypassing private mortgage insurance (PMI), which you can learn more about in our article on Private Mortgage Insurance (PMI).

How Does an 80/10/10 Loan Work?

The 80/10/10 name represents the breakdown of financing:

  • 80% Primary Mortgage: This first loan covers 80% of the home’s purchase price, helping you qualify without PMI as the loan-to-value ratio stays at 80%, which is key to avoiding PMI.
  • 10% Second Mortgage: Often a home equity loan or line of credit, this “piggyback” loan covers an additional 10% of the home’s price. Read more about second mortgages in our Second Mortgage and Home Equity Loan Interest Deduction pages.
  • 10% Down Payment: Your cash contribution helps keep your financing above the 80% loan-to-value threshold.

Combined, these parts finance the entire home purchase without the added cost of PMI.

Example

For a $400,000 home:

  • $320,000 primary mortgage
  • $40,000 second mortgage
  • $40,000 down payment

You’ll have two monthly loan payments instead of a mortgage plus PMI.

Pros and Cons

Advantages:

  • Avoids PMI premiums—saving potentially hundreds monthly.
  • Requires a smaller down payment compared to traditional loans without PMI.
  • Interest on both loans may be deductible. According to IRS Publication 936, interest on qualified mortgage loans up to $750,000 can be tax-deductible.

Disadvantages:

  • Managing two loan payments can be complex.
  • Second loan usually has a higher interest rate and may be variable if a HELOC.
  • More paperwork and closing costs.
  • Qualification criteria are stricter due to simultaneous approval for two loans.

Comparing an 80/10/10 Loan to Traditional Loans with PMI

Feature 80/10/10 Loan Traditional Loan with PMI
Down payment Often 10% As low as 3–5%, but PMI applies if under 20%
Number of loans Two One
PMI None Required until ~20% equity
Interest rate Primary low; second typically higher and may vary Single rate (fixed or adjustable)
Monthly payments Two separate payments One payment plus PMI fee

Current Use

Piggyback loans saw a decline after the 2008 housing crisis but are reemerging for well-qualified buyers. They’re suitable if you can handle credit and income verification and prefer avoiding PMI.

FAQs

What about 80/15/5 loans? The concept is similar but with a 15% second mortgage and 5% down payment.

Can I pay off the second loan early? Yes, paying it off early can reduce interest costs and simplify payments.

Is this better than an FHA loan? FHA loans allow low down payments but come with mortgage insurance premiums (MIP) often lasting the loan’s life. An 80/10/10 might be cheaper long term if you qualify and pay off the second loan quickly.

For more on related mortgage concepts, see our pages on Second Mortgage, Private Mortgage Insurance (PMI), and Home Equity Loan Interest Deduction.

References:

This article helps you understand if an 80/10/10 loan can be a smart tool for your home purchase strategy.