Piggyback loans are starting to resurface, but lenders are using a different version, an article in MortgageOrb explains.
Previously, piggyback loans were very popular, but today, the underwriting guidelines and qualifications make it difficult to obtain one, MortgageOrb said.
However, piggyback loans now usually consist of a conventional loan of 80% loan-to-value and a home equity loan or line of credit of 10% LTV. This allows the borrower to take out both loans simultaneously and provide a 10% down payment, the article said.
Becky Walzak, president and CEO of Indianapolis-based Looking Glass Group LLC, which consults with mortgage lenders and settlement agencies, says another advantage to piggyback loans is that the interest associated with both loans is tax-deductible. That is a plus for borrowers, but some lenders will sit out this trend. When home values dropped during the mortgage crisis, second-lien lenders suffered losses when the equity disappeared.