Sometimes people need to get really creative when it comes to financing the purchase of their new home. They'll borrow from friends and family, maybe, to scrape up the down payment, then try to work out the best loan they can with their bank. Circumstances can arise where the bank will approve your loan - but only by so much. That means you need to get a second loan to make up the difference. When home buyers have one mortgage from two different lenders, this is known as a piggyback loan.
Piggyback loans refer to two lenders offering one loan. Like the name "piggyback" implies, one loan will be bigger than the other. Piggyback loans are good for people who want to buy a bigger or more expensive home, because through a piggyback loan the risk associated with lending is shared between two lenders, usually banks. Piggyback loans are also good for people who don't have a whole lot of money to put down on their down payment.
While piggyback loans may be just the ticket for some home buyers, they do come with their share of potential problems. For starters, on average, piggyback loans - consisting of two loans, with possibly two dissimilar interest rates - cost more than regular single mortgage loans. They can, since oftentimes there's not very much of a down payment involved, result in a significant balloon payment at some point that can really startle the home buyer, and possibly cause them a lot of problems.
Another potential difficulty stemming from a piggyback loan is the fact that if the borrower needs to get another loan, for whatever reason, they may have a harder time since any prospective lender will see that they already have two major loans they're paying off.
To learn more about piggyback loans, and whether a piggyback loan would be right for you, be sure to speak with a mortgage professional. He or she could explain to you the pros and cons of a piggyback loan in expert detail.
