What does the term "piggyback loan" refer to?

The term "piggyback loan" refers to secondary financing that is taken out simultaneously with a primary mortgage. This type of loan typically occurs when a borrower takes out a first mortgage and a second mortgage, often to avoid paying private mortgage insurance (PMI) or to secure funds without making a larger down payment.

By using a piggyback loan, borrowers can combine two loans to cover the total amount needed to purchase a property, with one loan usually covering a larger portion of the purchase price. For instance, a common structure might involve a first mortgage covering 80% of the home's value and a second loan covering an additional 10%, allowing the borrower to put down only a 10% down payment. This approach can help borrowers qualify for financing they might not be able to obtain with a single loan, especially when trying to reach the down payment minimum required by lenders.

In contrast, the other options do not encapsulate the concept of a piggyback loan effectively. Main financing and first mortgage typically refer to the primary loan on a property, while a home equity line focuses on borrowing against the equity in an existing property rather than assisting in the initial purchase.