Figure Lending has unveiled a new piggyback loan at a time when housing affordability has rarely been worse.
Call it a sign of the times, and perhaps a strange reminder of the real estate market of the early 2000s.
But perhaps with some additional guarantees this time, such as taking out a loan!
The new product, which is a Home Equity Line of Credit (HELOC), will serve both new home buyers and existing homeowners looking to access more of their equity.
It will be available at Figure and through their partner network of lenders, banks, credit unions, loan servicers and home builders.
Figure’s New Piggyback HELOC Helps Reduce Down Payments
As noted, Figure’s new Piggyback HELOC aims to serve both new home buyers and existing homeowners.
Those still looking for the right property can use the HELOC as a second mortgage that closes at the same time as a first mortgage, hence the name piggyback.
For example, they can take out a first mortgage at an 80% loan-to-value (LTV) ratio and a HELOC at an additional 10% or more. This is called an 80/10/10 loan.
Other variations include 80/20 loans, which indicates a zero down payment. These products were very popular in the early 2000s.
It’s not clear what the figure for this product will be, but my understanding is that their maximum CLTV is 95%.
In other words, you may be able to take out a first and second mortgage while only making a five percent down payment. That would be an 80/15/5.
Using a second mortgage can help homebuyers avoid private mortgage insurance (PMI) and potentially get a lower mortgage rate.
Keeping the first loan at 80% eliminates the need for PMI, potentially reduces loan-level pricing adjustments, and can help a borrower stay below the conforming loan limit.
Often, conforming loan rates are less expensive than jumbo mortgage rates. And qualifying also tends to be easier for loans backed by Fannie and Freddie.
Recent home buyers can combine it with a cash-out refinance
If you already own a home, Figure argues that you can take advantage of a second chance to “downgrade to a less expensive alternative.”
They cite an example where a recent home buyer wants to tap into equity via a cash-out refinance, but is subject to the 80% LTV maximum on agency loans backed by Fannie and Freddie.
Even if they originally purchased the home with less than 20% down, it might be possible to reduce the first mortgage to 80% LTV and lower the PMI while taking out a second mortgage for a higher combined CLTV .
For example, someone who purchased a home for $450,000 with 10% down might be able to take out a new mortgage at 80% LTV and add a piggyback for another 15%.
In doing so, they gain access to more of their home equity, but also put themselves in a position where they owe more and could be closer to ending up in an underwater situation if home prices real estate was falling.
Figure offers HELOCs up to $400,000, meaning the loan amount shouldn’t be a barrier for most borrowers.
Figure HELOCs are a little different
Figure bills itself as the #1 non-bank home equity line of credit in the United States.
Although it only launched in 2018, Figure Lending has already generated more than $12 billion in home equity lines of credit.
Part of this incredible growth can be attributed to their use of technology, including a 100% online application process, no appraisal/title fees, and online notary services in many states.
And the process can be completed quickly, with funding in as little as five days.
But I should point out that their HELOCs require full drawdown of the line amount at closing. And they charge an origination fee based on that drawdown, ranging from 0% to 4.99%. Costs can therefore be high.
Their HELOCs are also fixed-rate loans, which is odd because most HELOCs are variable and tied to the prime rate, which increases or decreases every time the Fed changes its federal funds rate.
For the record, the premium rate is expected to fall over the next year as the Fed eases monetary policy.
Figure’s HELOC is already offered by some of the largest mortgage lenders, including CrossCountry Mortgage, Fairway Independent Mortgage, Rate (formerly Guaranteed Rate), Movement Mortgage, Union Home Mortgage and many others.
The company’s products are now available in 49 states and the District of Columbia.
(photo: Weak Jianwei)
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and existing) buyers better navigate the home loan process. Follow me on Twitter for hot takes.