Some home buyers use a first and second mortgage loan strategy, often called a piggyback loan or 80-10-10 loan, to avoid paying PMI. This approach can help keep the first mortgage at or below 80% of the home’s value, which may eliminate the PMI requirement on that first loan. But avoiding PMI does not automatically mean lowering the total cost of borrowing. In this guide, we’ll explain how the strategy works, why some Washington borrowers consider it, and how to compare it against paying PMI or waiting to make a larger down payment.
When you take out a mortgage, you may be subject to paying mortgage insurance in addition to interest and other fees associated with your mortgage. But there are different ways to approach that cost, and one of them involves splitting the financing between a first and second mortgage.
What does it mean to use a first and second mortgage loan? What are the advantages? And how does it all work?
There is a direct relationship between the first and second mortgage strategy, and PMI. Here’s the short version: By combining two home loans, borrowers can finance a larger purchase without having a loan-to-value (LTV) ratio that exceeds 80%, thus avoiding the “trigger” that requires private mortgage insurance.
The cost of PMI varies. Policy premiums typically range from 0.3% to about 1.5% of the original loan amount, paid annually.
PMI is a standard mortgage-industry requirement. It is usually required when borrowers take out a conventional home loan to buy a house, with a down payment of less than 20% of the home’s purchase price. (Because a down payment below 20% results in a loan-to-value ratio above 80%, which is the threshold for PMI coverage.)
But that’s when a single mortgage loan is being used. By combining two loans, home buyers in Washington State can purchase a house with a down payment below 20% — while also avoiding PMI.
That does not necessarily make a piggyback structure the better deal in every case. Borrowers usually need to compare the cost of the second mortgage, the total monthly payment across both loans, the added closing-cost complexity of using two liens instead of one, and their future plans. For example, someone who expects to refinance, pay down the second mortgage quickly, or avoid PMI for only a short period might evaluate the tradeoffs differently than someone who wants the simplest long-term payment structure.
In some situations, paying PMI on one loan may still be the better path. A single-loan structure may be simpler to manage, may involve fewer moving parts at closing, and may give the borrower more flexibility depending on future refinance goals. In other cases, waiting and saving for a larger down payment could be the cleaner option if it helps reduce both borrowing costs and payment complexity.
So the real question is not just, “Can I avoid PMI with a first and second mortgage?” It is, “Which path makes the most sense for my cash, payment goals, and timeline?” That is why this strategy works best as a comparison exercise rather than a one-size-fits-all solution.
| Option | Down Payment Needed | PMI Exposure | Payment Complexity | Closing-Cost Complexity | Future Flexibility |
|---|---|---|---|---|---|
| First and second mortgage | Often used with less than 20% down | May avoid PMI on the first loan | Higher, because there are two loans to manage | Higher, because two liens can add complexity | May help certain borrowers, but future refinance decisions can be more involved |
| One loan with PMI | Often used with less than 20% down | PMI is typically required | Lower, because there is only one loan payment | Lower than a two-loan structure | Can be simpler if the borrower plans to refinance or remove PMI later |
| Waiting or saving for a larger down payment | Usually requires more cash upfront | May avoid PMI by reaching 20% down | Lower, with one loan and no second lien | Potentially simpler financing structure | Can reduce complexity, but may delay the home purchase |
A home buyer in Seattle, Washington wants to buy a house valued at $900,000. This borrower uses a first mortgage in the amount of $700,000 (which is lower than the conforming loan limit for King County). The borrower also takes out a second mortgage loan for the amount of $110,000. That adds up to about 90% of the purchase price. The borrower then makes a down payment of 10%, in order to reach the full 100% of the price.
In this scenario, the first (and larger) home loan accounts for roughly 77% of the purchase price. This means that the LTV ratio is below the 80% threshold that typically requires private mortgage insurance. This is an example of combining a first and second loan in order to avoid PMI.
This strategy might not work for all home-buying scenarios. But in some cases, it might be the best option for Washington home buyers who (A) want to purchase a relatively high-priced home, and (B) want to avoid paying PMI.
Bottom line: Today’s mortgage industry is more flexible and diverse than many people realize. There are a wide variety of products available today. That’s why it’s so important to speak to a knowledgeable loan officer who understands all of the different financing options.
Not always. An 80-10-10 loan is one type of piggyback structure, but the broader idea is simply using two loans together instead of one. The exact split can vary depending on the borrower, the home price, and the loan program.
No. PMI is only one cost to compare. A second mortgage may carry its own interest rate and payment, and the total cost across two loans can be higher or lower depending on the structure.
Qualification standards vary by lender and program, but borrowers should generally expect the lender to review credit, available cash, monthly payment capacity, and the overall risk of using two loans together.
In some cases, yes. Borrowers purchasing higher-priced homes may explore a first-and-second structure to manage the size of the first mortgage or avoid PMI, but product availability and fit depend on the lender and the specific scenario.
Sometimes. Some borrowers use this strategy with the idea of refinancing later, paying off the second mortgage, or combining both loans into one. Whether that makes sense depends on future rates, home equity, and loan costs at that time.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Some borrowers use two loans instead of one so the first mortgage stays at or below 80% of the home’s value. That can avoid the PMI requirement on the first loan, because PMI is generally triggered when a conventional first mortgage exceeds 80% loan-to-value.
Not always. An 80-10-10 loan is one type of piggyback structure, but the broader strategy is simply using two loans together instead of one. The exact split can vary based on the borrower, home price, and loan program.
Sometimes. One common approach is a piggyback structure that uses a first and second mortgage together, such as an 80-10-10 setup. This can keep the first loan at or below 80% of the home’s value even when the borrower puts down less than 20%.
No. A 20% down payment is one common way to avoid PMI, but some borrowers use a first and second mortgage strategy instead. The key issue is usually whether the first mortgage stays at or below the 80% loan-to-value threshold.
It can be, depending on the loan structure. With a single conventional mortgage, 10% down usually still results in PMI. But with a piggyback setup, a borrower might put 10% down and use a second mortgage so the first loan remains below 80% loan-to-value.
No. Avoiding PMI does not automatically mean the financing is cheaper overall. Borrowers should compare the cost of the second mortgage, the combined monthly payments, the added closing-cost complexity, and their future plans before deciding which option makes the most sense.
PMI is insurance that protects the lender if the borrower defaults, while a second mortgage payment is repayment on an actual loan that the borrower must pay back with interest. Both can add to monthly costs, but they are different types of obligations.
In some cases, yes, but not always. A second mortgage may help a borrower avoid PMI on the first loan, yet it also has its own rate and payment. The better option depends on the full cost of both structures rather than PMI alone.
Requirements vary by lender and program, but lenders generally review credit, available cash, monthly payment capacity, and the overall risk of using two loans together. Qualification standards are not identical from one lender or program to another.
Sometimes. Some borrowers use this strategy with the idea of refinancing later, paying off the second mortgage, or combining both loans into one. Whether that makes sense depends on future rates, home equity, and the costs of refinancing at that time.
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