Securing Your Second Mortgage
A second mortgage is essentially a second lien against a property that is subordinate to a first mortgage or another secured loan. The second mortgage usually falls below the first loan in terms of lien status. This means that second mortgages are generally more expensive for banks and therefore come with a slightly higher interest rate.
This is why second mortgage lending can be found in the secondary market. Banks will often have their own loan programs for second mortgages and these can be arranged through the lender’s website or through an agent. However, if you’re looking to get a second mortgage you’ll have to find someone that you trust and have a relationship with.
As you can imagine, when you use the secondary market for your second mortgage the interest rates will be much higher than they would be if you had chosen to go with traditional means of procuring financing for your new second home. You will still find lenders who will offer their services as brokers to get more money for their clients, but these types of loans will also be on a much smaller scale. When you do need a second mortgage of course you’ll be able to find one as soon as you apply for it.
The primary reason for this is because this type of the second loan is not going through the bank’s approval process. Lenders like the fact that second mortgages do not need to go through a credit check as is required by conventional loans. That is something that both the bank and you enjoy as well. It means that if you don’t have the cash to secure a new mortgage loan, you’re not going to get turned down by the bank.
Another reason that second mortgages can be a great way to finance your new home is that they generally provide lower monthly payments than other forms of financing. This is so especially true if you get a good interest rate and you can pay off your first mortgage in full each month.
In order to get a second mortgage, you must be a homeowner. There are certain guidelines that lenders require in order to make this possible. For instance, you must have owned your home for at least one year and must also show proof of income and assets that will show that you can comfortably afford your new loan.
You will also have to prove to the lender that you have the financial means to pay off your existing loan in full each month. If you’re a homeowner you will need to have a hardship letter showing why your current mortgage isn’t able to meet your needs. In the letter, you must list all of your expenses related to paying off your loan each month. This includes your expenses from utilities to clothing to food.
If you have bad credit then you will have to make a good faith effort to fix your credit. You will also have to demonstrate to the lender that you are on track to meet your monthly obligations. If you have a mortgage in place but don’t have any equity then you will not be able to borrow money from a bank.
Because there is a risk with second mortgages that your home could be taken over by the lender, the interest rates that are charged are normally quite high. However, if you are able to secure the loan you should expect that the interest rate on the loan is usually lower than that of a conventional loan.
As a homeowner, you’ll be able to pay off your second mortgage in five years or less. If you have bad credit, or you aren’t an experienced homebuyer then you may have to spend several years paying off your second mortgage before you see results.
By securing your first mortgage now, you are protecting yourself against any issues that could arise as a result of getting a new home. Your home equity is your only financial investment that can fall into danger.