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Down Payments and Piggyback Loans: Funding the Purchase Gap

A down payment changes both the cash you need now and the borrowing costs you may face later. Some buyers combine two loans to cover a purchase, while others look for assistance or save a larger amount. Compare the full arrangement, including both payments and the money left for emergencies, before focusing on how quickly you can reach closing day.

The questions below use selected Consumer Financial Protection Bureau guidance, adapted and organized by Fynoptic. Source links and the dates displayed by those sources are provided at the end.

Where can I get money for a down payment on a home?

It depends on your situation. If you don't have cash for a down payment, there are several options available. Remember to advise your lender of your financial particulars, including that you are using one of the financial options described below.

  • Put off buying the home and keep saving until you have enough money for a down payment.
  • Get help from family members or other people you trust. For some loans, gifts can be used as down payments, as long as you can prove where the money came from and submit a signed statement saying the money is a gift and not a third-party loan.
  • You may be able to withdraw up to $10,000 from a traditional, SIMPLE, or Roth individual retirement account (IRA) without penalty. Generally, if you're under 59 and a half years old, you would have to pay a 10 percent tax penalty on early withdrawals. However, if the money is used to buy, build, or rebuild a first home, the penalty may be waived. Roth IRAs work differently than other IRAs. Consult a trusted tax or financial advisor before making any withdrawal to see if this makes the most financial sense for you.
  • In some cases, you can borrow money to make a down payment. However, you should carefully consider that option since borrowing your down payment would increase your overall debt and your monthly payments.
  • Sometimes local non-profit or government organizations can offer you a second mortgage on special terms to replace a down payment.
  • Some federal programs are also available. For eligible servicemembers or family members, Department of Veterans Affairs (VA) loans do not require a down payment. In addition, the United States Department of Agriculture (USDA). USDA offers a no –down-payment mortgage program for low- and moderate- income households in eligible rural areas.

Warning: Think twice before using retirement savings on your down payment. The biggest benefit of saving in an IRA is the tax-free growth of investment earnings. If you remove the principal to fund your down payment, you’ll have less money in the retirement account to grow tax-free. Your savings will not grow as quickly.

What kind of down payment do I need? How does the amount of down payment I make affect the terms of my mortgage loan?

There are many options for making down payments. The amount of your down payment will vary by the loan you choose and the lender’s requirements.

Generally, the larger the down payment you are able to make, the lower the interest rate you will receive and the more likely you are to be approved. If you cannot make a down payment of 20 percent, lenders usually will require you to purchase private mortgage insurance or obtain an FHA, VA, or USDA loan.

Don’t forget to factor in all the upfront costs you will have in addition to the down payment.Think about all the costs that you’ll likely have to deal with during the purchase process and immediately afterward. For example, you may want to pay points to lower your interest rate. You’ll also have to pay closing costs, which sometimes can be substantial. And don’t forget about the cost of moving and making any repairs that are needed right away.

Tip: Ask about how your down payment affects your interest rate and what options you have when you shop around for different loans.

What is a loan-to-value ratio and how does it relate to my costs?

The loan-to-value (LTV) ratio is a measure comparing the amount you are financing with the appraised value of the property. The higher your down payment, the lower your LTV ratio.

Tip

Learn how mortgage rules may help you when you shop for a mortgage.

Mortgage lenders may use the LTV to decide whether to lend to you and determine if they will require private mortgage insurance or use of a loan guaranteed or insured by the government such as an FHA loan. If you will need private mortgage insurance or are getting a government-backed loan, it may increase your upfront and monthly costs. Be sure to compare the amounts, terms, and costs of several loans, including the cost of mortgage insurance if it will be required.

Lenders will use the LTV to determine how much you can borrow, and the interest rate you will be offered. Higher-risk borrowers, those with a higher LTV, will usually be offered a higher interest rate. You may be able to get a better interest rate with a larger down payment.

What is a “piggyback” second mortgage?

A “piggyback” second mortgage is a home equity loan or home equity line of credit (HELOC) that is made at the same time as your main mortgage. Its purpose is to allow borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.

Typically, borrowers with a down payment less than 20 percent of the home’s price will need to pay for mortgage insurance. For example, a borrower that can afford a 10 percent down payment would typically pay for the first 10 percent of the home’s price with their down payment, and the remaining 90 percent of the price with a mortgage that requires mortgage insurance.

When using a “piggyback” mortgage, lenders structure the loans differently. For example, the same borrower might pay for the home with: a 10 percent down payment, 80 percent main mortgage, and a 10 percent “piggyback” second mortgage. In this scenario, the borrower is still borrowing 90 percent of the value of the home, but the main mortgage is only 80 percent. The “piggyback” second mortgage typically carries a higher interest rate, which is also often adjustable. These programs are offered under a variety of lender-specific brand names, but follow the same basic structure.

The “piggyback” structure was common during the mortgage boom in the early to mid-2000s. It is rare today, but could return. Under the rules during the mortgage boom, borrowers did not have to pay for mortgage insurance with an 80 percent main mortgage.



Tip:

If you’re considering a piggyback mortgage, here are some questions to ask yourself:

  1. Is the piggyback structure really cheaper? Consider the cost of both the main mortgage and the piggyback mortgage. Ask to see a quote for the same loan structured as a single loan with mortgage insurance, and compare total costs.
  2. Will the piggyback structure make it more difficult to refinance your mortgage later? It can be trickier to refinance a mortgage if you also have a second mortgage, because the second mortgage lender has to agree to the refinance (unless you are able to pay off the second mortgage with your refinance loan). Getting two lenders to agree to a refinance can be particularly difficult if your home value has declined or if you are behind on your payments and need a loan modification. It may also be harder to sell your home and pay off your mortgages if the value of the home has declined.

Tip:

If you have a problem with your mortgage, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).

Tip:

If you’re behind on your mortgage, or having a hard time making payments, you can call the CFPB at (855) 411-CFPB (2372) to be connected to a HUD-approved housing counseling agency today. You can also use the CFPB's "Find a Counselor" tool to get a list of U.S. Department of Housing and Urban Development (HUD)-approved counseling agencies in your area.

Sources and further reading

The CFPB source passages are U.S. government work in the public domain. Fynoptic has selected, organized, and adapted the material for this guide, including corrections identified through the additional sources listed above. Sources accessed October 27, 2026. This use does not imply agency endorsement or affiliation.

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