Not all banks and loan shops offer 2nd mortgages, so we suggest finding second mortgage lenders that specialize in this unique niche market of subordinate financing. So unless you have a lot of equity and an amazingly high credit score, the chances are pretty slim that you can walk into your local bank and take out a second mortgage loan.
Homeowners who have a need for cash for life expenses, such as a home remodel or college tuition payments, may decide to take out a second mortgage on their home.
A second mortgage lets you tap your home’s equity to pay for things that you may not have enough cash for in your savings account.
You can choose to get either a home equity line of credit (HELOC) or a home equity loan. Both have advantages and disadvantages, but we will cover those in a separate article.
What we want to cover here is how you go about finding the best second mortgage lender online. There are many second mortgage lenders available and you will do best if you look around and compare lenders. If you follow our tips and tricks below, you will be able to find the best second mortgage lender:
#1 Compare Apples to Apples
When you are getting quotes from second mortgage lenders, don’t stop at just looking at the interest rate. Look at the fees, points, origination fees and all the other fees that you are being charged.
Remember, if you compare in many instances, a ‘no fee’ mortgage to one with fees up front, you are not making an apples to apples comparison. The fees in the ‘no fee’ mortgage are often wrapped up into the mortgage interest rate. In some cases they will be hard costs that are rolled into your loan. In this instance, the fees and closing costs would increase the loan amount unless you paid them out of your pocket. You are paying similar fees; they are simply more hidden.
#2 Talk to the Person Handling the 2nd Mortgage
Whether you are getting a first or second mortgage, you should always talk to the person who will directly handle your loan. This might be a mortgage broker, a bank worker or a mortgage loan officer. You should drill him or her on their qualifications and experience. Does the person have a license, which is required for brokers?
Does the person belong to the National Assn. of Mortgage Professionals, or a similar body in your state? You should get references and look for online reviews.
Experience tells us that the loan officer matters more than the mortgage company. A great loan officer can make your loan go through without a hitch, while an incompetent one can cause countless problems.
Also remember that even the best second mortgage lenders hire bad people sometimes. Don’t simply trust the name of the lender. Find a good, highly reputable loan officer or broker that has experience closing 2nd mortgages, wherever he or she may work.
#3 Anticipate Extra Costs
Taking out any mortgage will cost money. Added costs on second mortgage can include title insurance, real estate transfer taxes, escrows for property taxes and homeowner’s insurance.
No matter if it is a first or second mortgage, you will have added costs and fees.
#4 Check That the Lender Offers What You Need
Many second mortgage lenders offer a lot of programs, but not every lender offers everything you may need. For example, not every 2nd mortgage lender can do VA or FHA loans.
LTV ratios, rates and down payments can vary per lender, even for essentially the same program.
#5 Get a Free Credit Report
You always will be better off shopping for a second mortgage when you know what your credit score is. If you have a credit score 700 or above, you will have more options for a second mortgage than if you have a 650 FICO.
You can talk more intelligently with your second mortgage loan officer if you know where you stand credit wise.
#6 Pay More Now or Get Lower Rate?
If you are keeping this loan for a long time, it may be better for you to pay more points up front to get a lower rate. If you think you will refinance this loan or pay it offer in a few years, you may want to opt for a lower rate and pay more now.
Regarding interest rate, you may also want to consider whether you want to get a HELOC loan or a fixed home equity mortgage. As we said earlier, these loans’ advantages and disadvantages are too numerous for this article. However, know that a HELOC or home equity line of credit features lower initial interest rates, but they are variable and can rise up to a certain limit.
That maximum rate varies per lender, but it is quite high. Also, after the draw period ends after five or 10 years, you start to pay interest and principal.
A home equity loan has a fixed rate over the life of the loan. It will be higher than the HELOC initially, but it is locked in for life.
Whether you want a low but variable rate, but a higher but fixed rate will depend upon your situation, finances and risk tolerance.
#7 Know Who You Will Be Dealing With
If you fill out an online application, you want to know what is going to happen after that. Will you get a lot of calls from several lenders trying to get your business? Will one specific loan officer contact you? All scenarios can work fine, but you should know in advance what is going to happen when you click Submit on a loan application online.
It is important to know at what point the lender will do a hard pull on your credit report, too.
#8 Self Employed May Need Manual Underwriting
If you are self-employed, you may find that your application cannot be approved with automatic underwriting. To get an approval, you may need to have the lender go through your application manually. Do not forget to ask if your second mortgage lender offers stated income equity loan programs.
What You Need to Remember
Getting affordable financing from a trusted second mortgage lender can be a great way to improve your finances and pay for things you need. Just follow our above tips and you should be able to find the perfect 2nd mortgage lender for your situation.