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 maybe an eerie reminder of the early 2000s housing market.
But perhaps with a few added safeguards this time around, such as actual loan underwriting!
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 via their partner network of lenders, banks, credit unions, loan servicers, and home builders.
Figure’s New Piggyback HELOC Allows for Lower Down Payments
As noted, Figure’s new Piggyback HELOC aims to serve both new home buyers and existing homeowners.
Those still searching for that right property can use the HELOC as a second mortgage that closes concurrently with a first mortgage, hence the name piggyback.
For example, they can take out a first mortgage at an 80% loan-to-value ratio (LTV) and the HELOC for another 10% or more. This is known as an 80/10/10 loan.
Other variations include 80/20 loans, which indicates zero down payment. These were quite popular during the early 2000s.
It’s unclear how high Figure will go on this product, but my understanding is their max CLTV is 95%.
In other words, you might be able to take out a first and second mortgage while bringing in just five percent down payment. This would be an 80/15/5.
The use of a second mortgage can help home buyers avoid private mortgage insurance (PMI) and possibly secure a lower mortgage rate.
Keeping the first loan at 80% eliminates the need for PMI, possibly reduces loan-level price adjustments, and can help a borrower stay below the conforming loan limit.
Often times, conforming loan rates are cheaper than jumbo mortgage rates. And qualifying tends to be easier for loans backed by Fannie and Freddie as well.
Recent Home Buyers Can Combine It with a Cash-Out Refinance
If you’re an existing homeowner, Figure argues that you can use a piggyback second to “transition to a lower-cost alternative.”
They cite an example where a recent home buyer wants to tap 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 lower the first mortgage to 80% LTV and drop PMI while tacking on a second mortgage for a higher combined CLTV.
For example, someone who bought a home for $450,000 with 10% down might be able to take out a new first mortgage loan at 80% LTV and add a piggyback for an additional 15%.
In the process, they get access to more of their home equity, but also put themselves in a position where they owe more and could be closer to being in an underwater position if home prices drift lower.
Figure offers HELOCs as large as $400,000, meaning loan amount shouldn’t be a roadblock for most borrowers.
Figure’s HELOCs Are a Little Different
Figure calls itself the #1 non-bank home equity line of credit in the United States.
Despite only launching in 2018, Figure Lending has already originated more than $12 billion in home equity lines of credit.
Part of that amazing growth can be attributed to their use of technology, including a 100% online application process, with no appraisal/title fees, and e-Notary services in many states.
And the process can be done quickly, with funding in as little as five days.
But I should point out that their HELOCs require the full draw on the line amount at closing. And they charge an origination fee based on that draw, ranging from 0-4.99%. So costs can be steep.
Their HELOCs are also fixed-rate loans, which is odd because most HELOCs are variable and tied to the prime rate, which goes up or down whenever the Fed changes its fed funds rate.
For the record, prime is expected to come down over the next year as the Fed eases its monetary policy.
Figure’s HELOC is already being offered by some of the largest mortgage lenders out there, including CrossCountry Mortgage, Fairway Independent Mortgage, Rate (formerly Guaranteed Rate), Movement Mortgage, Union Home Mortgage, and many more.
The company’s products are now available in 49 states and the District of Columbia.
(photo: Low 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 begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.