Since 2008, we have seen a rapid decline of available home loan programs due to the credit crisis. No longer are banks allowed to give out mortgages with unverified income. And the days of no-down payment loans are over. There is a duality to this tightening of credit. The tigthening of credit has made it harder to buy a home. However, at the same time, real estate is as cheap as ever to own. The US Federal Housing Finance Agency puts the February 2011 housing price index at 181.8, which puts it at the same level January 2004.
However, one type of loan that has not gone completely out of favor yet by banks is the 80-20 piggyback loan. That is a type of no down payment loan wherein you get a mortgage that is 80% of the selling price and then you get another mortgage that is 20% of the selling price. The second mortgage will usually have shorter terms and a higher interest rate. Although most banks have done away with it, there are still a few that offer it. The first place I would start checking is your local credit union. I went down to my credit union the other day (Verity Credit Union) and I found out that they still have an 80-20 piggyback loan. However, there is PMI attached to the loan. So the first thing I would do is to check your local banks and credit unions since they have more laxed terms and guidelines. Also, if your bank doesn’t offer a 80-20 loan, you may want to ask for an 80-15-5 loan. It is essentially the same terms as an 80/20 loan, but instead of borrowing 20% on the second lien, you instead borrow 15% and put 5% of your own money as a down payment. Another option is a 80-10-10 loan, where you put 10% down. Those are options that you can shop around for if you don’t have the 20% down payment for a house and do not qualify for an FHA or VA loan.
So what can we take away from all this? Banks will no longer offer 100% financing . Also if you do not have 20% down, you better be prepared to pay PMI—no matter what type of loan you are getting. What is the good news? Well PMIs don’t last forever. PMIs usually apply for the first several years and are gone once you are in good standing with the lien holder.
So the answer in short form is, yes piggyback loans still exist. However, you have to be willing to do your due dilligence to find a bank willing to do such a loan.