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Have you heard the term “piggyback mortgage” and wondered what it is? At its most basic, a piggyback mortgage can be considered a second mortgage. These are usually either a home equity loan or home equity line of credit (HELOC).

Piggyback mortgage loans can sometimes also be a wise option for homebuyers looking to finance a home without putting down a significant down payment. In this situation, they are taken out at the same time as the main mortgage. A benefit is that they may help you pay less over the life of the loan because you don’t need to pay for private mortgage insurance (PMI).

Read on to learn more about what a piggyback loan is and how it works.

What Is a Piggyback Mortgage Loan?

Homebuyers can use a piggyback mortgage loan to fund the purchase of a property. Essentially, they take out a primary loan and then a second loan, “the piggyback loan,” to fund the rest of the purchase.

Using the strategy helps homebuyers reduce their mortgage costs, such as by not needing a 20% down payment to qualify. It also helps them avoid the need for private mortgage insurance, which is usually required for those who don’t have a 20% down payment.

Recommended: How to Qualify for a Mortgage

How Do Piggyback Loans Work?

When appropriate for a homebuyer’s unique situation, a piggyback mortgage might potentially save the borrower in monthly costs and reduce the total amount of a down payment.

Here’s an example to consider of how they work:

Jerry is buying a home for $400,000. He doesn’t want to put down more than $40,000 for the down payment. This eliminates several mortgage types. He works with his lender through the prequalification and preapproval process to secure a first mortgage for $320,000, then with a piggyback mortgage lender to secure a piggyback mortgage of $40,000, and finishes the financing process with his down payment of $40,000.

Piggyback home loans were a popular option for homebuyers and lenders during the housing boom of the early 2000s. But when the housing market crashed in the late 2000s, piggyback loans became less popular, as a lack of equity proved homeowners more vulnerable to loan defaults.

Fast forward to today’s housing market. With the cost of living by state rising in certain areas, piggybacks are starting to become a viable and acceptable option again.

Recommended: First-Time Homebuyer Guide

Types of Piggyback Loans

Here are some of the types of piggyback loans to consider:

A 80/10/10 Piggyback Loan

There are different piggyback mortgage arrangements, but an 80/10/10 loan tends to be the most common. In this scenario, a first mortgage represents 80% of the home’s value, while a home equity loan or HELOC makes up another 10%. The down payment covers the remaining 10%.

In addition to avoiding PMI, homebuyers may use this piggyback home loan to avoid the mortgage limits standard in their area.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

A 75/15/10 Piggyback Loan

A loan with a 75/15/10 split is another popular piggyback loan option. In this case, a first mortgage represents 75% of the home’s value, while a home equity loan accounts for another 15%. And like the 80/10/10 split, the remaining 10% is the down payment.

For example, a $300,000 75/15/10 loan would break down like this:

Main loan (75%): $225,000
Second loan (15%): $45,000
Down payment (10%): $30,000

See how these options stack up in chart form:

	80/10/10 Piggyback Loan	75/15/10 Piggyback Loan
Structure:	80% primary loan 10% HELOC 10% down payment	75% primary loan 15% HELOC 10% down payment
Typical use:	Commonly used to avoid PMI and stay under jumbo loan limits	Commonly used when purchasing a condo to avoid higher mortgage rates

Average Piggyback Mortgage Rate

A piggyback loan usually has a higher interest rate than the primary mortgage, and the rate can be variable, which means it can increase over time. Let’s say your primary mortgage rate is 6.75%. The rate on the second mortgage might be 7.5%. If you borrowed $35,000 with this piggyback mortgage, your monthly payment for that loan would be $416. Of course, the exact rates you are able to secure from a piggyback mortgage lender would be based on how much you borrow, your credit score, current interest rates, and other variables.

Benefits and Disadvantages of a Piggyback Mortgage

A piggyback mortgage may help homebuyers avoid monthly PMI payments and reduce their down payment. But that’s not to say an 80/10/10 loan doesn’t come with its own potentially negative costs.

There are pros and cons of piggyback mortgages to be aware of before deciding on a mortgage type.

Piggyback Mortgage Benefits

Allows you to keep some cash on hand. Some lenders request a downpayment of 20% of the home’s purchase price. With the average American home price of $346,270 as of mid-2023, this can be a difficult sum of money to save, and paying the full 20% might wipe out a buyer’s cash reserves. A piggyback mortgage may help homebuyers secure their real estate dreams but still keep cash in reserve.

Possibly no PMI required. In what may be the largest motivator in securing a piggyback mortgage, homebuyers may not be required to pay PMI, or private mortgage insurance, when taking out two loans. PMI is required until 20% of a home’s value is paid, either with a down payment or by paying down the loan’s principal over the life of the loan.

PMI payments can add a substantial amount to a monthly payment and, just like interest, it’s money that won’t be recouped by the homeowner when it’s time to sell. With an 80/10/10 loan, both loans meet the requirements to forgo PMI.

Potential tax deductions. Purchasing a home provides homeowners with potential tax deductions. Not only is there potential for the interest on the main mortgage loan to be tax deductible, the interest on a qualified second mortgage may also be deductible.

Potential Downsides of Piggyback Mortgages

Not everyone qualifies. Piggyback mortgage lenders take on extra risk. Without PMI, there is an increased risk of a financial loss. This is why they’re typically only granted to applicants with superb credit. Even if it’s the best option, there’s no guarantee that a lender will agree to a piggyback loan scenario. You’ll see whether the cards are stacked in your favor by going through the process of getting preapproved for your home loan.

Additional closing costs and fees. One major downfall of a piggyback loan is that there are always two loans involved. This means a homebuyer will have to pay closing costs and fees on two loans at closing. While the down payment may be smaller, the additional expenses might outweigh the initial savings.

Savings could end up being minimal or lost. Before deciding on a piggyback loan arrangement, a homebuyer may want to estimate the potential savings. While this type of loan has the potential to save money in the beginning, homeowners could end up paying more as the years and payments go on, especially because second mortgages tend to have higher interest rates.

To quickly make an assessment, make sure the monthly payment of the second mortgage is less than the applicable PMI would have been on a different type of loan.

Here are the pros and cons of piggyback loans in chart form to help you decide if this kind of mortgage arrangement is right for you.

Pros of Piggyback Loans	Cons of Piggyback Loans
Secure a home purchase with less cash	Only applicants with excellent credit may qualify
Possible elimination of PMI requirements	Extra closing costs and fees may apply
Could qualify for additional tax deductions	A second mortgage could cost more money over the entire loan term

How to Qualify for a Piggyback Mortgage

It’s essential to keep in mind that you’re applying for two mortgages simultaneously when you apply for a piggyback home loan. While every lender may have a different set of requirements to qualify, you usually need to meet the following criteria for approval:

•   Your debt-to-income (DTI) ratio should not exceed 36%. Lenders look at your DTI ratio — the total of your monthly debt payments divided by your gross monthly income — to ensure you can make your mortgage payments. Therefore, both loan payments and all of your other debt payments shouldn’t equal more than 36% of your income, although some lenders may go higher.

•   Your credit score should be close to excellent. Because you are taking out two separate loans, your risk of default increases. To account for this increase, lenders require a strong credit score, usually over 700 (though some lenders may accept 680), to qualify. A higher credit score means you’re more creditworthy and less likely to default on your payments.

Before you apply for a piggyback loan, make sure you understand all of the requirements to qualify.

Refinancing a Piggyback Mortgage Loan

Sometimes homeowners will seek to refinance their mortgage when they have built up enough equity in their home. Mortgage refinancing can help homeowners save money on their loans if they receive a lower interest rate or better terms.

If you have a piggyback mortgage, however, refinancing could pose a challenge. It’s often tricky to refinance a piggyback loan because both lenders have to approve. In addition, if your home has dropped in value, your lenders may even be less enticed to approve your refinance.

On the other hand, if you’re taking out a big enough loan to cover both mortgages, it may help your chances of approval.

Recommended: How Much Does It Cost to Refinance a Mortgage?

Is a Piggyback Mortgage a Good Option?

Not sure if a piggyback mortgage is the best option? It may be worth considering in the following scenarios:

If you have minimal down payment resources: Saving up for a down payment can take years, but a piggyback mortgage may mean the homebuyer can sign a contract years sooner than any other type of mortgage.

If you need more space for less cash: Piggyback loans often allow homeowners to buy larger, recently updated, or more ideally located homes than with a conventional mortgage loan. This advantage can make for a smart financial move if the home is expected to quickly build equity.

If your credit is a match: It’s traditionally more difficult to qualify for a piggyback loan than other types of mortgages. For many lenders, you will need to have your down payment, stable income and employment history, and acceptable DTI lined up.

Piggyback Mortgage Alternatives

A piggyback mortgage certainly isn’t the only type offered to hopeful homebuyers. There are other types of mortgage loans homebuyers may also want to consider.

Conventional or Fixed-Rate Mortgage

This type of loan typically still requires PMI if the down payment is less than 20% of the home’s purchase price, but it is the most common type of mortgage loan by far. They’re often preferred because of their consistent monthly principal and interest payments.

Conventional loans are available in various terms, though 15-year and 30-year options are among the most popular.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Adjustable-Rate Mortgage

Also known as an ARM, an adjustable-rate mortgage may help homebuyers save on interest rates over the life of their loan. However, the interest rate will only remain the same for a certain period of time, typically for one year up to just a few years.

After the initial term, rate adjustments reflect changes in the index (a benchmark interest rate) the lender uses and the margin (a number of percentage points) added by the lender.

Interest-Only Mortgage

For some homebuyers, an interest-only mortgage can provide a path to homeownership that other types of mortgages might not. During the first five years (some lenders allow up to 10 years), homeowners are only required to pay the interest portion of their monthly payments and put off paying the principal portion until their finances more easily allow for that.

FHA Loan

Guaranteed by the Federal Housing Administration, FHA loans include built-in mortgage insurance, which makes these loans less of a risk to the lender. So while it’s not possible to save on monthly insurance payments, homebuyers may still want to consider this type of loan due to the low down payment requirements.

Other Options to Consider

Some other alternatives to a piggyback mortgage might include:

•   Speaking to a lender about PMI-free options

•   Quickly paying down a loan balance until 20% of a home’s value is paid off and PMI is no longer required

•   Refinancing (if a home’s value has significantly increased) and allowing the loan to fall under the percentage requirements for PMI

•   Saving for a larger down payment and reducing the need for PMI

The Takeaway

Before signing on for a piggyback mortgage, it’s always recommended that a homebuyer fully understand all of their mortgage options. While a second mortgage might be the best option for one homebuyer, it could be the worst option for another. If a piggyback mortgage is selected, understanding its benefits and potential setbacks may help avoid financial surprises down the line. The home loan help center can help you make decisions.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is a piggyback fixed-rate second mortgage?

A piggyback fixed-rate second mortgage is a home equity loan or home equity line of credit (HELOC) that is obtained at the same time as the primary mortgage on a home purchase. Because its rate is fixed, the interest rate does not change over the life of the loan.

Is it hard to get a piggyback loan?

Because piggyback borrowers typically don’t pay for private mortgage insurance, the requirements to obtain this type of loan can be more strict. You may need a credit score of 680-700 or more and a debt-to-income ratio less than 36%.

What is the advantage of a piggyback loan?

A piggyback loan can help you avoid having to pay for private mortgage insurance (PMI) if you are making a low down payment on a home purchase. However, you’ll want to compare the costs of the second mortgage (including its closing costs) against the costs of PMI before making a decision.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Personal loans are borrowed lump sums that you pay back, with interest, to the lender. Though the money can be used for almost anything, some common uses for personal loans include covering medical bills, paying for home repairs, and consolidating debt.

When you don’t have the savings to cover an important purchase or bill, a personal loan is usually a better alternative to credit cards. We’ll take a closer look at what personal loans can be used for, their drawbacks and benefits, and alternative ways to pay for unexpected expenses.

What Can I Use a Personal Loan For?

Personal loans may be used for just about anything “personal,” meaning it’s not a business-related expense. Here are some of the most popular reasons people take out different types of personal loans.

Debt Management and Consolidation

Refinancing or high-interest debt consolidation into better loan terms is one of the most common uses for a personal loan — and one of the most financially savvy. Credit card debt carries some of the highest interest rates out there. Credit cards also typically have variable rates, making it challenging to create a predictable budget to pay down outstanding debt.

Rates for personal loans, on the other hand, tend to be lower than credit card APRs. This can save borrowers a lot of money in interest over the long term. And the fixed payback schedule of a personal installment loan may help borrowers avoid falling into a vicious cycle of revolving debt that can continue indefinitely.

You don’t have to be drowning in credit card debt to benefit from consolidation. For borrowers with multiple loans, consolidating debt with one personal loan can be a useful financial tactic — if the borrower qualifies for good loan terms.

Bottom line: Personal loans can help streamline multiple high-interest debt payments into one payment. Plus, loans tend to have lower rates than credit cards. This could help borrowers save money in interest over time.

Recommended: Where to Get a Personal Loan

Wedding Expenses

According to Zola, an online wedding planning site, the average cost of a wedding in 2023 is around $29,000. Unfortunately, many young couples have not saved up enough to pay for their entire wedding themselves. (In many cases, the days when a bride’s parents footed the entire wedding bill are over.)

A personal loan, sometimes referred to as a wedding loan when used for this purpose, can cover some or all of a well-budgeted wedding. Personal loans tend to offer much lower interest rates than credit cards, which some newlyweds may use to fund their big day.

However, before you go this route, think long and hard about whether you really want to start out your married life in debt. Consider if you can actually afford to pay off the loan in a timely manner. If not, it might be better to cut back on your wedding budget, or take more time to save up for the big day.

Bottom line: A wedding loan can help pay for some or all of the wedding costs, which could help you avoid having to use a credit card or tap into your savings.

Unexpected Medical Expenses

When a medical emergency occurs, it’s important for your main focus to be on a healthy outcome. But the financial burden can’t be ignored. Being able to pay for out-of-pocket expenses with a low-rate personal loan may relieve some stress and give you time to heal.

It’s no secret that the cost of medical care in America can be sky-high, especially for the large portion of Americans who have high-deductible health plans. The situation is even more challenging for those who don’t have health insurance coverage at all. When paying out of pocket, even a seemingly simple procedure, like casting a broken leg, can cost a shocking $7,500, according to Healthcare.gov.

Bottom line: Medical emergencies happen. Using a personal loan to help pay for bills and expenses could provide peace of mind.

Recommended: How to Pay for Medical Bills You Can’t Afford

Moving Expenses

A low-interest personal loan (also known as a relocation loan) may help defray some out-of-pocket costs associated with moving. According to the American Moving & Storage Association, a local move can set you back $1,250 on average. Moving 1,000 miles or more typically costs $4,890.

And these figures only account for the move itself. As anyone who has relocated knows, hidden costs can and do often pop up, from boxes and storage space to cleaning fees and lost security deposits.

There are also expenses that come with a new home. Most new rentals require upfront cash for a deposit, sometimes totaling three times the monthly rent (first, last, and security). Opening new utility accounts may also require a deposit.

And don’t forget about replacing household items left behind. Even basics like soap, light bulbs, shower curtains, and ketchup can easily total a few hundred dollars.

Lastly, miscellaneous costs can arise during the move itself, such as replacing broken items. Even with insurance, there’s usually a deductible to pay.

Bottom line: Whether you’re relocating across town or across the country, expenses can pile up quickly. A relocation loan can help you pay to move and set up your new home.


💡 Quick Tip: SoFi lets you apply for a personal loan online in 60 seconds, without affecting your credit score.

Funeral Expenses

Many people have life insurance to cover their own funeral. But what if Mom, Dad, or Grandpa didn’t plan ahead? If the deceased did not plan appropriately to finance their death, and life insurance doesn’t cover the bill, a personal loan can be a quick, easy solution for the family.

Basic costs for a funeral include the service, burial or cremation, and a memorial gathering of friends and family. The median cost of a funeral service with a viewing and burial is $7,848, while the cost of a funeral with cremation is $6,971.

Bottom line: When a loved one passes away, paying for the funeral may be the last thing on your mind. If you need help financing the arrangements, a personal loan could provide a fast and simple solution.

Home Improvement Expenses

Many renters and homeowners feel that annual or biannual itch to spruce up their living space. That might mean a fresh coat of paint, upgraded appliances, or a kitchen remodel. Depending on the level of your project, the cost of home remodel can come in anywhere from a few hundred to tens of thousands of dollars.

If you’re making upgrades that will improve a home’s value, the cost may be made up when selling the house later. Using a personal home improvement loan can help you focus on the renovation instead of fretting about costs. Plus, if you get an unsecured loan, you won’t have to worry about putting your home equity on the line as collateral.

Bottom line: Taking out a home improvement loan is one way to help fund a home improvement project.

Family Planning

Whether your plans involve pregnancy, adoption, in vitro fertilization (IVF), or surrogacy, growing a family can be expensive.

The average cost of a complete IVF cycle, for example, starts around $15,000 and can go up from there, depending on the center and your medication needs. Meanwhile, giving birth costs an average of $18,865, and insured women typically pay $2,854 of that amount.

Once your baby arrives, you’ll need money to pay for diapers, clothing, formula, and other supplies. A personal loan can help you cover the expenses without having to dip into your savings or emergency fund.

Bottom line: When you’re looking to add a new member to the family, a personal loan can provide peace-of-mind financing.

Car Repairs

You get a flat tire. The transmission fails. The brakes go out. When your car breaks, chances are you can’t afford to wait to have it fixed while you pull together the necessary funds. A personal loan can help you cover the cost of the repair, which can be significant.

On average, consumers spend around $548 per year fixing their cars, according to Cox Automotive, which owns Kelley Blue Book. Of course, you could spend much more, depending on the work being done. If you’re replacing a failed transmission, for instance, you can expect to pay between $2,900 and $7,100 for a new one.

Bottom line: Car repairs are rarely planned. If you need money quickly to fix your car, you may want to consider a personal loan. Depending on the lender, you may be able to get same-day funding, but it could also take up to one week to get the money.

Vacation

Ready to take the plunge and book that bucket list trip? A personal loan is one way to help finance a dream vacation, and the interest rate could be lower than a credit card’s.

Bottom line: If you’re planning an expensive getaway and don’t have the cash you need at the ready, a personal loan can help you pay for the trip. Note that you may be paying off the loan long after the trip.

What Personal Loans Can’t Be Used For

While personal loans can be used for almost anything, there are some restrictions. In general, here are things you should not use a personal loan for:

•   A down payment on a home. Buying a home? In general, you’re not allowed to use personal loans for down payments on conventional home loans and FHA loans.

•   College tuition. Most lenders won’t allow you to use personal loans to pay college tuition and fees, and many prohibit you from using the money to pay down student loans.

•   Business expenses. Typically, you are not allowed to use personal loan funds to cover business expenses.

•   Investing. Some lenders prohibit using a personal loan to invest. But even if your lender allows it, there may be risks involved that you’ll want to be aware of.

Recommended: Personal Loan Glossary

Pros and Cons of Taking Out a Personal Loan

As you’re weighing your decision, it may help to take a look at the overall pros and cons of personal loans:

Pros	Cons
Fast access to cash	Increases debt
Can be used a variety of purposes	Potential fees and penalties
Lower interest rates compared to credit cards	Credit and income requirements to qualify
No collateral required for unsecured personal loans	Applying might ding your credit score

Deciding Whether to Take Out a Personal Loan

Wondering whether a personal loan makes sense for your situation? Here are a few things to keep in mind as you make your decision.

•   Figure out how much you’ll need to borrow. Remember, you’ll be on the hook for repaying a significant amount of money including interest. There might be hidden fees, too.

•   Make a repayment plan. Going into debt should never be taken lightly, so it’s important to set a realistic strategy to repay the debt.

•   Check your credit score. Your credit history and score will have a significant impact on the loan terms, and interest rates and qualifying criteria will vary from lender to lender.

•   Explore your options. Before applying with a lender, shop around for the interest rate and terms that best fit your needs.

Keep in mind that there may be situations when taking out a personal loan might not make sense. Here are a few instances:

•   You can’t afford your current monthly payments. If making the monthly payments on your existing debt is a challenge, you may want to reconsider whether it’s a good idea to take on any more debt right now.

•   You have a high amount of debt. Shouldering a high amount of debt? Taking out a personal loan could put a strain on your finances and make it more difficult for you to make ends meet or put money away for savings. Plus, carrying a lot of debt could increase your debt-to-income ratio (DTI), which lenders look at in addition to your credit score and credit report when reviewing your loan application.

•   You have a “bad” credit score. A less-than-stellar credit score could reduce your chance of getting approved for a personal loan. If your credit score is considered “bad,” which FICO defines as 579 or below, then you may want to hold off on taking out a personal loan and instead work on your credit. You can help raise your score by paying your bills on time, paying attention to revolving debt, checking credit reports and scores and addressing any errors, and being mindful about opening and closing credit cards.

Recommended: Can a Personal Loans Hurt Your Credit?

Alternatives to Personal Loans

Considering alternative ways to pay for expenses or big-ticket items that don’t involve personal loans? Here are three to keep in mind:

Credit cards

Credit cards offer a line of credit that you can use for a variety of purposes. This includes making purchases, balance transfers, and cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.

A credit card may make sense for smaller expenses that you can pay off fairly quickly, ideally in full each month.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Home equity line of credit

If you have at least 20% equity — the home’s market value minus what is owed — you may be able to secure a home equity line of credit (HELOC). HELOCs commonly come with a 10-year draw period, generally offer lower interest rates than those offered by a personal loan, and you can borrow as much as you need, up to an approved credit limit. However, you may be required to use your home as collateral, and there’s a chance your rate might rise.

HELOCs might be an option to consider if you plan on borrowing a significant amount of money or if you expect to have ongoing expenses, like with a remodeling project.

401(k) loan

If you need money — and no other form of borrowing is available — then you may want to consider withdrawing funds from your retirement plan. A 401(k) loan doesn’t come with lender requirements and doesn’t require a credit check. However, you may face taxes and penalties for taking out the money. Each employer’s plan has different rules around withdrawals and loans, so make sure you understand what your plan allows.

Borrowing from your 401(k) could be a smart idea in certain situations, like if you need a substantial amount of cash in the short term or are using the money to pay off a high-interest debt.

The Takeaway

When it comes to weddings, funerals, cross-country moves, and other big-ticket items, a personal loan is typically a better alternative to high-interest credit cards. Other common uses for personal loans include debt consolidation, medical bills, home improvement, family planning, and vacation.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What is interest?

Interest is the money you’re charged when you take out a loan from a bank or earn for leaving your money in a bank to grow. It’s expressed as a percentage of the total amount of the loan or account balance, usually as APR (Annual Percentage Rate) or APY (Annual Percentage Yield). These figures estimate how much of the loan or account balance you could expect to pay or receive over the course of one year.

How important is credit score in a loan application?

Credit score is one of the key metrics lenders look at when considering a loan applicant. Generally, the higher the credit score, the more likely lenders are to approve a loan and give the borrower a more favorable interest rate. Many lenders consider a score of 670 or above to indicate solid creditworthiness.

Can I pay off a personal loan early?

Most lenders would likely welcome an early loan payoff, so chances are you can pay off a personal loan early. However, if an early payoff results in a prepayment penalty, it may not make financial sense to pay off the loan ahead of schedule.

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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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An interest-only mortgage lets you pay just interest for a set period of time, typically between seven and 10 years, as opposed to paying interest plus principal from the beginning of the loan term.

While interest-only mortgages can mean lower payments for a while, they also mean you aren’t building up equity (ownership) in your home. Plus, you will likely have a big jump in payments when the interest-only period ends and you are repaying both interest and principal.

Read on to learn how interest-only mortgages work, their pros and cons, and who might consider getting one.

How Do Interest-Only Mortgages Work?

With an interest-only mortgage, you solely make interest payments for the first several years of the loan. During this time, your payments won’t reduce the principal and you won’t build equity in your home.

When the interest-only period ends, you generally have a few options: You can continue to pay off the loan, making higher payments that include interest and principal; look to refinance the loan (which can provide for new terms and potentially lower interest payments with the principal); or choose to sell the home (or use saved up cash) to fully pay off the loan.

Usually, interest-only loans are structured as a type of adjustable-rate mortgage (ARM). The interest rate is fixed at first then, after a specified number of years, the interest rate increases or decreases periodically based on market rates. ARMs usually have lower starting interest rates than fixed-rate loans, but their rates can be higher during the adjustable period. Fixed-rate interest-only mortgages are uncommon.

An interest-only mortgage typically starts out with a lower initial payment than other types of mortgages, and you can stick with those payments as long as 10 years before making any payments toward the principal. However, you typically end up paying more in overall interest than you would with a traditional mortgage.

💡 Quick Tip: When house hunting, don’t forget to lock in your mortgage loan rate so there are no surprises if your offer is accepted.

Interest-Only Loan Pros and Cons

Before you choose to take out an interest-only mortgage, it’s a good idea to carefully weigh both the benefits and drawbacks.

Pros

•  Lower initial payments The initial monthly payments on interest-only loans tend to be significantly lower than payments on regular mortgages, since they don’t include any principal.

•  Lower interest rate Because interest-only mortgages are usually structured as ARMs, initial rates are often lower than those for 30-year fixed-rate mortgages.

•  Frees up cash flow With a lower monthly payment, you may be able to set aside some extra money for other goals and investments.

•  Delays higher payments An interest-only mortgage allows you to defer large payments into future years when your income may be higher.

•  Tax benefits Since you can deduct mortgage interest on your tax return, an interest-only mortgage could result in significant tax savings during the interest-only payment phase.

Cons

•  Cost more overall Though your initial payments will be smaller, the total amount of interest you will pay over the life of the loan will likely be higher than with a principal-and-interest mortgage.

•  Interest-only payments don’t build equity You won’t build equity in your home unless you make extra payments toward the principal during the interest-only period. That means you won’t be able to borrow against the equity in your home with a home equity loan or home equity line of credit.

•  Payments will increase down the road When payments start to include principal, they will get significantly higher. Depending on market rates, the interest rate may also go up after the initial fixed-rate period.

•  You can’t count on refinance If your home loses value, it could deplete the equity you had from your down payment, making refinancing a challenge.

•  Strict qualification requirements Lenders often have higher down payment requirements and stricter qualification criteria for interest-only mortgages.

Recommended: What Is Considered a Good Mortgage Rate?

Who Might Want an Interest-Only Loan?

You may want to consider an interest-only mortgage loan if:

•  You want short-term cash flow A very low payment during the interest-only period could help free up cash. If you can use that cash for another investment opportunity, it might more than cover the added expense of this type of mortgage.

•  You plan to own the home for a short time If you’re planning to sell before the interest-only period is up, an interest-only mortgage might make sense, especially if home values are appreciating in your area.

•  You’re buying a retirement home If you’re nearing retirement, you might use an interest-only loan to buy a vacation home that will become your primary home after you stop working. When you sell off your first home, you can use the money to pay off the interest-only loan.

•  You expect an income increase or windfall If you expect to have a significant bump up in income or access to a large lump sum by the time the interest period ends, you might be able to buy more house with an interest-only loan.

Recommended: Tips for Shopping for Mortgage Rates

Qualifying for an Interest-Only Loan

Interest-only loans aren’t qualified mortgages, which means they don’t meet the backing criteria for Fannie Mae, Freddie Mac, or the other government entities that insure mortgages. As a result, these loans pose more risk to a lender and, therefore, can be more difficult to qualify for.

In general, you may need the following to get approved for an interest-only loan:

•  A minimum credit score of 700 or higher

•  A debt-to-income (DTI) ratio of 43% or lower

•  A down payment of at least 20% to 30% percent

•  Sufficient income and assets to repay the loan

The Takeaway

An interest-only mortgage generally isn’t ideal for most home-buyers, including first-time home-buyers. However, this type of mortgage can be a useful tool for some borrowers with strong credit who fully understand the risks involved and are looking at short-term ownership or have a plan for how they will cover the step-up in payment amounts that will come down the road.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you’re looking for a cheaper alternative to a traditional house, you might consider buying a mobile home. The price of a mobile home (also known as a manufactured home) is typically much lower than a standard single-family home. Plus, these homes aren’t necessarily temporary. These days, factory-made homes can be just as permanent as houses that are built on-site. They can also be customized in many of the same ways as a traditional home.

While mobile homes don’t always qualify for a traditional mortgage, there are several types of financing that can help make buying a factory-built home more affordable. Read on for a closer look at the process of buying — and financing — a mobile, manufactured, or modular home.

What is the Average Cost of a Mobile Home?

According to the Census Bureau’s February 2022 Manufactured Housing Survey, the average price of a new manufactured home is $128,100.

More specifically, the average price for a single-wide mobile home is $89,200 and average for a double-wide mobile home is $160,400.

However, mobile home prices can vary significantly by region. The highest prices tend to be in the Northeast, where the average cost of a new mobile home is $107,000 for a single-wide and $167,800 for a double-wide.

The lowest prices are typically in the South, where the average price for a single-wide is $88,200 and average cost of a double-wide is $157,900.

In the West, a single-wide mobile home averages $92,800 and a double-wide averages $170,000, while in the Midwest, a single-wide mobile home averages $85,300 and a double-wide averages $158,800.

Recommended: How to Budget for Buying A House

Differences Between a Mobile Home, Modular Home, and Manufactured Home

The terms mobile home, manufactured home, and modular home are often used interchangeably. While all three refer to homes built in a factory rather than on-site, there are some differences between them. Below, we break it down.

Mobile Home

A mobile home is a prefabricated home built on a permanent trailer chassis that was constructed prior to June 15, 1976. That is when the U.S. The Department of Housing and Urban Development (HUD) enacted the National Manufactured Housing Construction and Safety Standards Act. After that date, new safety standards went into effect, which led to a new designation for these homes.

Manufactured Home

Like a mobile home, a manufactured home is built almost exclusively in a factory rather than on-site. However, these homes were built after June 15, 1976, when HUD put new safety standards into effect for mobile homes and changed the name of these structures from “mobile” homes to “manufactured” homes.

Another difference between mobile and manufactured homes is that manufactured homes typically are not moved after assembly. That said, it is possible to move a manufactured home if it has a pier and beam foundation. Manufactured homes need to not only meet HUD standards but also local building standards for the communities where they will be located.

Recommended: How Much Does It Cost to Build a Manufactured Home?

Modular Homes

Like mobile and manufactured homes, modular homes are built in a factory and shipped to the land where they will be set up. However, modular homes are often delivered in two or more modules (hence the name) that are then put together on-site by a contractor.

Modular homes are not designed to be relocated and are placed on a permanent foundation. Once put together, these homes have a lot in common with on-site built homes. They may have a basement and/or crawlspace, come in a variety of layouts, and can be one or two stories.

Like manufactured homes, modular homes must adhere to local building codes.

💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.

Things To Consider When Buying a Mobile Home

To find the best mobile home for your needs, here are some things to keep in mind.

Location

As with any home purchase, location is key. You can install your mobile home on land you already own, or purchase land for your mobile home. In either case, you’ll want to make sure that local zoning regulations allow for the installation of mobile homes and that the local utilities are able to connect a mobile home.

Another location option is to rent a plot of land in a mobile home community. If you find a community you like, it’s a good idea to find out what their restrictions are for home size and features before you buy a mobile home.

Size

Mobile homes are usually classified by their width. A single-wide is slightly under 15 feet wide and around 70 feet long. A double-wide mobile home is usually the same length but double the width — around 30 feet wide.

Due to their long, narrow shape, single-wide homes have fewer floorplan options and can work best for individuals or couples. Double-wide homes offer more space, as well as design options, and can be ideal for larger families.

Keep in mind that larger homes will, of course, be more expensive and also require a larger lot.

New vs Used

These days, you find new manufactured homes with all kinds of bells and whistles, including vaulted ceilings, walk-in closets, and luxurious bathrooms. If you’re looking to save money, however, you might consider going with a used mobile home. Just keep in mind that a used home may show signs of wear and tear (depending on how well it was maintained) and that some mobile home sites don’t allow homes made before a certain date.

Financing a Mobile Home

Once you’ve decided on the type and size of mobile home you want to buy, it’s time to figure out how you are going to pay for it. While it can be harder to find a loan for a mobile home than a traditional home, there are still a number of options. Here are some to consider.

Fannie Mae

While not all lenders finance manufactured homes, some may offer Fannie Mae’s MH Advantage program. These loans come with terms of 30 years, competitive rates, and down payments as low as 3%.

However, they also come with strict qualification criteria: The manufactured home must be at least 12 feet wide, have a minimum of 600 square feet, and can’t be on leased land. The home also needs to have a driveway and a sidewalk that connects the driveway, carport, or detached garage.

Freddie Mac

Another option for manufactured home financing is the Freddie Mac Home Possible mortgage program. This program offers 15-, 20- and 30-year fixed-rate loans, as well as adjustable-rate mortgages. Like Fannie Mae, these loans typically come with low rates and down payments as low as 3%. Freddie Mac loans also have strict criteria for qualification: The home must be considered real property, have at least 400 square feet of living space, and be built on a permanent chassis.

FHA

The Federal Housing Administration (FHA), which offers loans for traditional homes with flexible credit and down payment requirements, also offers manufactured home loans called Title I and Title II loans.

You can use a Title I loan to buy a manufactured home (but not the land it sits on), provided that the property is your primary residence, is connected to utilities, and meets FHA guidelines. These loans typically come with terms up to 20 years and relatively low loan amounts.

Title II loans, by contrast, can be used to purchase both a manufactured home and the land it sits on together. However, the home must count as real property and have been built after 1976.

US Department of Veterans Affairs (VA)

If you’re a member of the military community, you may be able to qualify for a loan insured by the Department of Veterans Affairs (VA) to purchase a mobile or manufactured home. To qualify for a VA loan for a manufactured home, your home must be on a permanent foundation, meet HUD guidelines, and must be purchased with the land underneath it. These loans often offer 100% financing with no money down; terms can range from 20 to 25 years.

💡 Quick Tip: You never know when you might need funds for an unexpected repair or other big bill. So apply for a HELOC (a home equity line of credit) brokered bySoFi today: You’ll help ensure the money will be there when you need it, and at lower interest rates than with most credit cards.

Chattel Loans

A chattel loan is a loan designed to purchase different types of expensive personal property, such as cars, boats, and mobile homes. You don’t have to own the land your home will sit on to get a chattel loan, so this can be a good option if you plan to rent a space in a mobile home community. Some lenders also offer chattel loans that are insured by the FHA, VA, and the Rural Housing Service (RHS) through the U.S. Department of Agriculture.

Chattel loans typically have higher rates and shorter terms than traditional mortgages. Like a traditional mortgage, however, these loans hold the property being financed as collateral for the loan. That means that if you run into trouble making payments, the lender can seize and re-sell the mobile home.

Personal Loans

Since mobile homes generally cost far less than traditional homes, you may be able to finance your purchase through a personal loan.

Personal loans are typically unsecured loans with a fixed interest rate that can be used for virtually any purpose (including the purchase of a mobile home). These loans don’t have restrictions on how your mobile home is built, so you can likely qualify even if it’s fully movable and not attached to a permanent foundation. Also, personal loans don’t put your home at risk, and the application process and time to funding tends to be shorter than other types of mobile home loans. However, interest rates may be higher.

While some lenders offer maximum personal loans of $40,000 to $50,000, others will let you borrow $100,000 or more. If you can find a larger personal loan, it may be enough to finance a mobile, manufactured, or modular home.

Recommended: How Much Is a Down Payment on a House?

Getting Approved for a Personal Loan

If you’re thinking about applying for a mobile home loan, here are some steps that can help streamline the process.

1. Check Your Credit Reports

Whenever you apply for any type of financing, a lender will likely look at your credit history to help them determine how much they will lend to you and at what rate (or if they will lend to you at all). It’s wise to look at your three credit reports, see where you stand, and make sure there aren’t any mistakes or inaccuracies that could negatively affect your credit. You can get free copies of your credit reports from the three consumer bureaus — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com.

2. Determine Whether You’re Buying Land and a Mobile Home

This will determine how much money you need to borrow, as well as what your financing options are. Some lenders will only offer mobile home financing if the home will be permanently set up on land that you own.

3. Save For a Down Payment

While it’s not always required, you may also want to think about saving for a down payment on your manufactured or mobile home.

4. Find the Right Lender

Interest rates can vary from one lender to the next, so it can definitely pay to shop around and compare offerings from banks, credit unions, and online lenders. Some lenders will allow you to “prequalify” for a loan with a soft credit check (which doesn’t impact your credit score). This will allow you to get an idea of the loan amount and rate you may be able to qualify for before you officially apply.

The Takeaway

While mobile and manufactured homes are typically more affordable than a traditional home, you may still need financing to cover the cost of the purchase. You may be able to get a loan from the same sources as traditional mortgages (such as FHA and VA loans). Other options include specialized manufactured home loans through Fannie Mae and Freddie Mac, chattel loans, and personal loans.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can you get a personal loan for a mobile home?

Yes, a personal loan can be used to buy a mobile, manufactured, or modular home. Applicants will need to meet qualification requirements of the lender they’re working with.

What is the maximum personal loan amount for a mobile home?

The maximum loan amount is dependent on the lender. Many have maximum loan amounts of $40,000 and $50,000 but some will offer up to $100,000. The amount you can borrow will also depend on your income, credit score, and other factors.

Where can I get a personal loan to buy a mobile home?

Traditional banks, credit unions, and online lenders may offer personal loans to buy a mobile or manufactured home.

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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