A piggyback loan is a second mortgage made at the same time as your main mortgage, so the first loan stays at 80% of the home's price and you avoid private mortgage insurance (PMI). The classic version is 80/10/10: an 80% first mortgage, a 10% second mortgage, and 10% down. You're still borrowing 90% of the price. The CFPB says the second loan typically carries a higher interest rate, often adjustable, that piggyback loans are "rare today," and that you should compare the total cost against a single loan with mortgage insurance before choosing.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. Buyers in Temple, Killeen, and Georgetown ask me about piggyback loans because they've heard PMI is a waste of money. Sometimes it is the more expensive path. Sometimes it isn't. This guide walks through the math and the Texas rules using the CFPB, Fannie Mae, and the Texas Constitution, read October 25, 2026.
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How a Piggyback Loan Works
The CFPB explains it with a buyer who has 10% down:
- Single loan: 10% down and a 90% mortgage with mortgage insurance
- Piggyback (80/10/10): 10% down, an 80% first mortgage, and a 10% second mortgage
Why 80%? Fannie Mae requires mortgage insurance on a conventional first mortgage when the loan-to-value (LTV) ratio is above 80%. Keeping the first loan at 80% avoids that requirement, even though your total borrowing is still 90%.
Hypothetical 80/10/10 Example
| Piece | Share of price | Amount |
|---|---|---|
| Purchase price | 100% | $300,000 |
| Down payment | 10% | $30,000 |
| First mortgage | 80% | $240,000 |
| Piggyback second mortgage | 10% | $30,000 |
| Combined loan-to-value (CLTV) | 90% | $270,000 total borrowed |
Hypothetical numbers to show the structure, not a quote or an offer of credit. Closing costs, rates, and payments are not shown.
CLTV is what underwriters look at. Fannie Mae calculates CLTV by adding the first mortgage, any closed-end second, and the drawn balance of any HELOC, then dividing by the lower of the sales price or appraised value. Here that's ($240,000 + $30,000) / $300,000 = 90%.
Piggyback Loan vs. PMI vs. Down Payment Assistance
| Piggyback (80/10/10) | One loan with PMI | DPA second lien (TDHCA or TSAHC) | |
|---|---|---|---|
| What it is | 80% first plus a 10% second | One loan above 80% LTV | First mortgage plus a program second lien for down payment or closing costs |
| Mortgage insurance | None on the 80% first | Required above 80% LTV (conventional) | Depends on the first mortgage type |
| Second loan rate | CFPB: typically higher, often adjustable | No second loan | 0% on the programs covered on this site |
| Payments on the second | Monthly payments on two loans | One payment | Deferred or forgivable on the programs covered on this site |
| Can it go away? | Only by paying off the second | PMI can be canceled under federal rules | Forgivable options can be forgiven after a set time; deferred options are due at sale, refinance, or payoff |
| Refinancing later | CFPB: trickier, second lender must agree unless paid off | One lender | Program terms apply |
Piggyback vs. PMI: What to Compare
The CFPB's advice is direct: ask for a quote on the same loan structured as a single loan with mortgage insurance and compare total costs. When I run that comparison, I look at:
- Both payments together: the first and second mortgage payments versus one payment plus PMI
- Rate risk: if the second is adjustable, what the payment could do later
- How long PMI lasts: under federal law, borrower-paid PMI on most conventional loans can be canceled once you reach 80% of the original value and ends automatically at 78% if you're current. My how to remove PMI guide covers the details.
- Your plans: a second mortgage stays until you pay it off, while PMI can disappear as you pay down the loan or as values rise, subject to the servicer's rules
The CFPB adds that the PMI cost varies by down payment and credit score, and that a piggyback "may be marketed as being cheaper, but that doesn't necessarily mean it is."
Piggyback vs. Down Payment Assistance
A Texas down payment assistance second lien is also "a second loan at closing," but it's built for a different job. On this site:
- My First Texas Home (TDHCA) offers assistance as a 0% second lien, either 30-year deferred repayable or 3-year forgivable when available.
- Home Sweet Texas (TSAHC) offers a grant, a 3-year forgivable second, or a 30-year deferred repayable second when available.
Fannie Mae has a separate framework, Community Seconds, for subordinate financing from government agencies, housing finance agencies, certain nonprofits, the Federal Home Loan Banks, employers, and tribes, and not from the seller. Fairway is a participating lender for both TDHCA and TSAHC programs. See down payment assistance in Texas for the full overview.
Texas Rules: Why the Second Has to Be a Purchase-Money Loan
This is the part most national articles skip. The CFPB describes a piggyback second as a "home equity loan or HELOC." In Texas, home equity loans and HELOCs are capped: under Section 50(a)(6) of Article XVI of the Texas Constitution, a home equity loan plus all other debt on the homestead can't exceed 80% of fair market value. My HELOC in Texas guide covers that 80% limit.
That means a Texas home equity loan or HELOC can't be the 10% piece of a 90% purchase. Section 50(a)(1) separately allows liens for "the purchase money thereof, or a part of such purchase money." So in Texas, a piggyback second used to buy a homestead is set up as a purchase-money second lien closed with the first mortgage. If you're offered one, ask the lender how the second lien is structured and get both loans in writing before you commit. A Texas real estate attorney can answer legal questions about a specific lien.
Fannie Mae Rules for a Second Mortgage Behind a Conventional Loan
If the first mortgage is a conventional loan sold to Fannie Mae, the second has to follow Fannie Mae's subordinate financing rules:
- It must be documented and recorded, and clearly subordinate to the first mortgage.
- It must be disclosed to Fannie Mae, the appraiser, and the mortgage insurer, if any.
- Payments must at least cover the interest, so the balance doesn't grow.
- It must carry a market rate (Community Seconds have their own rules).
- A balloon due less than five years after the first mortgage's note date isn't allowed unless the loan fully amortizes, with limited exceptions.
- A loan-level price adjustment applies to certain mortgages with subordinate financing, and CLTV limits come from Fannie Mae's Eligibility Matrix.
Both payments count. The federal Ability-to-Repay rule requires the lender to consider the payment on any simultaneous loan, so the second mortgage payment goes into your debt-to-income ratio.
Who Might Look at a Piggyback Loan?
- Buyers with 10% to 20% down who'd rather not pay PMI and can handle two payments
- Buyers who expect to pay the second off quickly, for example with a bonus or the sale of another home
- Buyers near a loan limit who want to keep the first mortgage below it. Compare that with jumbo loans before deciding.
Who should be careful? The CFPB warns that if home values fall, it can be harder to refinance or sell with two loans, because the second lender has to agree to a refinance unless it's paid off.
A Central Texas Example: Comparing Second-Loan Options
A long-term buyer in nearby Georgetown wanted to compare grants, forgivable assistance, and repayable second loans before choosing. We laid them side by side and weighed the interest rate, monthly payment, total costs, and what could trigger repayment if they sold or refinanced early. The "free money" option isn't always the cheapest one over time, so seeing the full picture mattered.
Illustrative scenario, not an actual client transaction. Forgiveness and repayment terms depend on the specific program.
Frequently Asked Questions
What is a piggyback loan?
A piggyback loan is a second mortgage made at the same time as your main mortgage. It keeps the first mortgage at 80 percent of the home's value so you avoid private mortgage insurance on that loan. The most common example is 80/10/10, which means an 80 percent first mortgage, a 10 percent second mortgage, and 10 percent down.
Is a piggyback loan cheaper than paying PMI?
Not always. The CFPB says the second mortgage typically has a higher interest rate that is often adjustable, and it recommends comparing total costs against a single loan with mortgage insurance. PMI can also be canceled later, while a second mortgage stays until it is paid off.
Are piggyback loans still available?
The CFPB says piggyback loans were common in the early to mid-2000s and are rare today, though they could return. Availability depends on the lender, so ask whether a second mortgage is offered and compare it with a single loan and with down payment assistance.
Can I use a HELOC as a piggyback loan in Texas?
Not for the 10 percent piece of a 90 percent purchase. The Texas Constitution limits home equity loans and HELOCs to 80 percent of the home's value including all other debt. A Texas piggyback second used to buy a homestead is set up as a purchase-money lien instead.
How is a piggyback loan different from down payment assistance?
A piggyback second is a regular loan, usually with monthly payments and a market rate. Texas assistance programs such as My First Texas Home and Home Sweet Texas offer 0 percent second liens that are deferred or forgivable when available, with repayment terms set by the program.
Want to Compare a Piggyback Loan With PMI and DPA?
I'll lay out the options you qualify for side by side, including total cost over the years you expect to own the home, so you can choose with real numbers.
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Related Guides
- How to Remove PMI
- Down Payment Assistance in Texas
- My First Texas Home Program
- Home Sweet Texas Home Loan Program
- HELOC in Texas
- Conventional Loans
Sources
- CFPB: What is a "piggyback" second mortgage?, What is mortgage insurance and how does it work?, and When can I remove PMI?
- Fannie Mae Selling Guide: B7-1-01 Provision of Mortgage Insurance, B2-1.2-02 CLTV Ratios, B2-1.2-04 Subordinate Financing, and B5-5.1-02 Community Seconds
- 12 CFR 1026.43, Ability-to-Repay
- Texas Constitution, Article XVI, Section 50
- Program details from this site's My First Texas Home and Home Sweet Texas guides
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit and property approval and program guidelines, and approval, rates, and program availability are not guaranteed. This article does not state that any particular piggyback or second mortgage product is offered; ask about current availability. Assistance programs are subject to funding and program requirements. This is general information, not legal or tax advice, and is not affiliated with or endorsed by the CFPB, Fannie Mae, TDHCA, TSAHC, or any government agency.