People choose to take out a second mortgages for various reasons. It can give them the extra funds that they need to put towards other things, traditional banking may not be available for the amount they need, or it can be a great way to consolidate debt. However, it can be quite confusing to understand the financial and legal intricacies surrounding second mortgages.
What exactly is a Second Mortgage?
In simple terms, a second mortgage is a loan that is taken out on a property that is already mortgaged. For those with excellent credit and more than 20% equity available in their property a second mortgage could come in the form of a Home Equity Line of Credit. It there is less equity available or the homeowner has weaker credit a second mortgage through a trust company or private lender would be required.
Who Qualifies for a Second Mortgage?
In order to qualify for a second mortgage lenders will look at four areas:
Equity. The difference between your current mortgage amount and the value of your home is your equity, the more you have available, the higher your chances of qualifying. Available equity will also help determine the risk for the lender and affect your interest rate and pricing.
Income. Lenders want to verify that you have a dependable source of income, to ensure that you can make payments.
Credit score. A higher credit score is an indication on how well you repay your credit, this can have a direct impact on how low your interest rate will be and how much risk the lender is willing to take.
Property. Lenders will often look for properties that have been well maintained and in urban locations. The property and equity will often determine whether a second loan can be arranged and the income and credit will help determine the pricing.
The Application Process
When you make an application for a second mortgage, all of the factors mentioned previously will be taken into account. An application, recent mortgage statement and proof of income is enough to have your mortgage broker at The Mortgage Advisors get started on finding you the right solution that makes sense for your financial needs and goals.