These are mortgage loans which are issued beyond the conforming limits set by the Federal Housing Enterprise. They are not normally purchased, guaranteed or securitized by institutions like Freddie Mac and Fannies Mae.
Because they are beyond the said limits they are listed on a high risk basis, which yields higher returns. However, currently the spread between jumbo loans and conventional mortgage loans have reduced.
Piggy back loans an alternative to Jumbo loans
A home financing option wherein a property is purchased with the help of mortgage loans from more than one lender is called a Piggy Back loan.
These loans are generally indicated with numbers like 80-15-5, wherein the first number indicates the amount of loan secured by the first mortgage, the second indicates the percentage of loan secured by the second mortgage and the third number, the down payment required to be made by the applicant for availing this loan option.
While jumbo loans help in purchasing a house with a single loan liability, it does come with a large down payment requirement. Adding to it is the heavy interest on the loan due to the risk factor attached to it. These loans are purchased by institutions other than Freddie Mac and Fannie Mae.
The greatest advantage of Piggyback loans is that it helps in availing loans at a less than 20% down payment option. It is the most ideal option to first time home buyers who might not have sufficient funds to sponsor their down payment.
Since the idea behind this loan package is dual mortgage, in times where an additional amount is required it should not be difficult to get one.
A low or no down payment situation helps home buyers to save money for other requirements. It also means less money blocked in purchase of house. As the liability is spread across two or more lenders, the rates of interest is also comparatively less in comparison to a jumbo loan.