Thinking about getting a second mortgage loan can be overwhelming, more so when you don’t know where to start in order to apply for a second mortgage. Perhaps you’re wondering whether you’ll qualify or not, maybe you’re not sure whether applying for a second mortgage would be a smart decision for you, or maybe you want to save up and at the same time, find the best second mortgage provider for you. We aim to help and provide you with this information below!
What is a Second Mortgage?
A second mortgage is a type of loan that is backed by your home equity and that you take on top of your primary mortgage. A second mortgage allows you to tap your home equity via a lump sum without having to sell your home. It is important to note that payments for a primary and second mortgage are separate and both must be paid by the homeowner.
Generally speaking, a second mortgage has a higher interest rate than a first mortgage because lenders face more risks by financing second mortgages. In the event that the homeowner got into financial trouble, the primary mortgage is still likely to get paid and the second mortgage won’t be a priority, hence the interest rates are higher.
Getting a Second Mortgage
Second mortgages are also known as home equity loans. The term can also apply to a HELOC or home equity line of credit which you can better understand by reading our primer on getting a HELOC post. As for getting a second mortgage, it is usually given to homeowners with about 20% home equity and a certain credit score.
Banks and other big financial institutions are the major financiers of second mortgages; however, they have strict rules which make them unattractive for self-employed individuals and those who are trying to repair their credit score. Private lenders also finance second mortgages and they have friendlier terms for those who may not qualify for the terms set by banks. Private mortgage lenders typically work with mortgage brokers.
Uses for a Second Mortgage
A second mortgage can be used for debt consolidation or to pay for a huge expense such as a major home renovation. These are smart ways to use a second mortgage because debt consolidation saves you money on interest and funding a home renovation means increasing your home’s value and therefore increasing your home equity.
Qualifying for a Second Mortgage
In order to qualify for a second mortgage, the lender will look into your equity, your credit score, your ability to pay, and your property. A third party home inspector may be hired as well as a property assessment may have to be done. Your income will be scrutinized to check your ability to pay and your credit score will be perused to see the loans you have. Fees will be a part of this before you qualify and given access to funds via a second mortgage.
Need the help of mortgage brokers to apply for and get approved for a second mortgage? Professional mortgage brokers can do more than that! Talk to us to avoid second mortgage mistakes and get in touch with honest private mortgage lenders. Contact us today!