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After the recent financial and housing crisis, getting piggyback loans has become very hard. The standard 80-10-10 structure (80% first mortgage, 10% piggyback loan and 10% down payment) is no longer offered in many states.

What are your options, then?

One approach is to simply take the 90-10 loan (90% first mortgage and 10% down payment). You either have to pay for private mortgage insurance (PMI) or accept a bit higher interest rate. Incidentally, the higher interest rate is tax-deductible, while PMI cost isnt, so be careful about making direct comparisons.

With a good credit, you may even qualify for mortgage insurance paid by the lender.

You have to also think carefully about whether youre going to keep 90-10 for a long period, or repay 10% in a few years. If the latter, you should ensure that your mortgage has no prepayment penalties.

Banks usually ask you to put down 20% of the mortgage loan amount as a down payment. You may be unable to afford it, or may simply prefer to use your cash for other purposes. Regardless, if you're not making the 20% down payment, you may be asked to purchase private mortgage insurance (PMI). The PMI cost adds a substantial amount to your monthly mortgage payment.

There is a way to avoid both PMI and the 20% down payment. It is called a piggyback loan; in fact, this situation is one of the biggest reasons homeowners take a piggyback loan.

As you can read in a related article, piggyback loan is an additional loan you take out, separate your first mortgage loan. The rates on piggyback loan are higher by a few percentage points; in fact, piggyback loan is a kind of home equity loan.

So how do you choose between a piggyback loan and PMI? It comes down to a purely financial decision; you need to compare the expected present value of the PMI cost with the expected present value of the additional interest you pay on your piggyback loan. Such a calculation is very hard to make, not least because it involves many unknowns: How many years until you sell the house? How will the interest rates change? And so on.

Therefore, you should consult with a financial advisor before making a decision.

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