Getting a second mortgage can be either challenging or easy depending on how informed you are. By definition, an additional loan that you take on a property that is already mortgaged is a second mortgage. This makes a second mortgage riskier for lenders as compared to a first mortgage. In the event of a default, the second mortgage lender knows that they are only second in position on who gets paid first. The lender also risks not getting fully paid or paid at all. For this reason, it is understandable that the interest rates for second mortgages will always come out higher than that of primary mortgages.
Types of Second Mortgages, What is Best for You?
Depending on your ability to pay, existing loans, income, and other factors, one form of second mortgage may fit you more than another. For instance, if you have more than 20% equity in your home and happens to have good credit, a HELOC or a home equity line of credit may make the most sense for you. If you’re someone with little equity on your property, then it might make more sense to try to get a second mortgage from a private lender because they are usually more lenient in their requirements as compared to say, banks. If you’re not sure which type of second mortgage to apply for, then call us so we can guide you on which one might work for you.
Uses for a Second Mortgage
The uses for a second mortgage are endless. The most common uses include debt consolidation, paying for home renovation or home improvement, and using the money for investments such as higher education or another property. Some people may think that using a second mortgage for these may not be a smart decision because of interest rates. However, note that interest for second mortgages are still significantly lower than credit cards and other types of loans more so if you have a good credit score.
What You Need to Qualify for a Second Mortgage
Lenders typically look into 4 main qualifiers to approve someone’s application for a second mortgage.
- The first factor is how much equity the homeowner has. The larger it is, the easier it is to get approved. Regular and up to date payments to utilities is under this qualifier as well.
- The second factor is income. Verifiable income is always good to have because this serves as a guarantee that you have the ability to pay.
- The third factor is credit score. Higher credit score means easier approval as well as lower interest rates because it generally means that you’re good at paying debt.
- The fourth factor is the property itself. A lender views any granted loan as an investment. A run-down property may mean money lost in the future so a well-maintained property in a good location will have better chances of approval when getting a second mortgage.