Which term describes a second loan used to cover part of the down payment, resulting in a total loan amount exceeding 100% of the home price?

Which term describes a second loan used to cover part of the down payment, resulting in a total loan amount exceeding 100% of the home price?

• A. Soft money loan
• B. FHA loan
• C. 125% piggyback loan
• D. Hard money loan

Answer: (C)

When a second loan is used to cover part of the down payment, pushing the total borrowed amount beyond the home’s price, that arrangement is called a piggyback loan. Specifically, a 125% piggyback loan means the combined financing equals 125% of the purchase price—the first mortgage covers most of the price, and a second loan covers additional down-payment dollars, resulting in total debt that exceeds 100% of the home’s price. This can help a borrower avoid or reduce private mortgage insurance and reach a desired loan-to-value, but it also means taking on more total debt and often paying a higher rate on the second loan. Other options don’t fit this scenario: a soft money loan refers to private or non-traditional financing outside standard mortgage programs; an FHA loan is a government-insured loan with its own eligibility rules and typically fixed down-payment requirements rather than a piggyback structure; a hard money loan is short-term, asset-based borrowing with higher costs and different use cases, not a secondary down-payment mortgage in a typical home purchase.

When a second loan is used to cover part of the down payment, pushing the total borrowed amount beyond the home’s price, that arrangement is called a piggyback loan. Specifically, a 125% piggyback loan means the combined financing equals 125% of the purchase price—the first mortgage covers most of the price, and a second loan covers additional down-payment dollars, resulting in total debt that exceeds 100% of the home’s price. This can help a borrower avoid or reduce private mortgage insurance and reach a desired loan-to-value, but it also means taking on more total debt and often paying a higher rate on the second loan.

Other options don’t fit this scenario: a soft money loan refers to private or non-traditional financing outside standard mortgage programs; an FHA loan is a government-insured loan with its own eligibility rules and typically fixed down-payment requirements rather than a piggyback structure; a hard money loan is short-term, asset-based borrowing with higher costs and different use cases, not a secondary down-payment mortgage in a typical home purchase.