Which of the following describes the lien priority for the 20% loan?

A borrower is approved for an 80/20 loan.

Which of the following describes the lien priority for the 20% loan?
A . First
B . Second
C . First as it will be combined with the 80% loan
D . Second but combined with any other liens

View Answer

Answer: B

Explanation:

In an 80/20 loan structure, the borrower obtains two loans: an 80% first mortgage and a 20% second mortgage, often referred to as a "piggyback loan." The 20% loan has second lien priority, meaning it is subordinate to the 80% loan. If the borrower defaults and the property is foreclosed, the lender holding the first mortgage (80%) is paid first, and the second mortgage (20%) is paid from any remaining proceeds.

The first lien is always the larger 80% loan, and the second lien covers the smaller 20% loan.

References:

Fannie Mae Guidelines on piggyback loans

Freddie Mac Loan Priority Rules