First Time Home Buyer Credit

Making a second mortgage
Piggyback versus PMI

Piggybank loans are home financing options which are used by homeowners in order to make the ideal 20 percent downpayment on a new home. The second mortgage is termed as a piggyback because it adds to the primary mortgage enabling homeowners to make a bigger downpayment on the loan.

Making a twenty percent downpayment is often required to avoid expensive Prime Mortgage Insurance (PMI) payments. Any downpayment made which do not make the twenty percent downpayment is considered "risky." This lending institutions oblige homeowners who don't make the ideal downpayment avail of a PMI in order for them to protect their investment.

Piggyback loans have been used as source of funding for making a bigger downpayment on the new home. Homeowners who don't make the 20 percent downpayment make a piggyback loan because PMIs are often expensive and just pads monthly mortgage payments. To add to the dilemma of making insurance payments, PMIs are not tax deductible making homeowners shoulder the full brunt of the additional payment.

Also referred to 80-10-10 loans, values represent a percentage which makes the whole amount of the loan. 80 represent the partial value of the home the bank is loaning, 10 the percentage of actual downpayment the homeowner makes and 10 the percentage that the piggyback loan contribute to the downpayment.

Two things which determine whether a homebuyer makes the 20 percent downpayment are the home's value and to a certain point his credit score. Some buyers who have an excellent credit score may find themselves with more leverage when computing for the necessary downpayment.

The payment period for PMIs also varies as the home's market value rises or falls. Homeowners whose homes value increase over time may find themselves paying PMIs for a shorter period of time. But this certainly is not always the case as market forces may also drag the values of our homes. With a drop in market values, homeowners are forced to pay PMIs for a longer period of time until they have invested enough equity in their homes to avoid paying PMIs.

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