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 2nd 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 HELOCs 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 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 credit line initially, but it is locked in for life. You may need assistance when looking for the best HELOC rates.
If you are doing a remodel or new home construction it pays to compare the rates and terms on HELOCs and construction loans.
Whether you want a low but variable rate, but a higher but fixed rate will depend upon your situation, finances and risk tolerance. Before signing documentation it is imperative that you shop for the best second mortgage rates on a loan program that you qualify for.
#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. Also borrowers with credit problems may need a lender that offers bad-credit home equity loans, so don’t be afraid to ask.
Credit, LTV and Income Requirements for Second Mortgage Loans in 2017
Home owners who want to pull cash out of their home for things they need may want to get a second mortgage in 2017. Interest rates are near record lows again as of September 2017, and home values are rising. Many home owners can use some of their home’s equity to get things they want or need, such as a home renovation, car, pay for a college education and other big-ticket items.
It is important to note however that you need to qualify for the second mortgage; they do not just hand them out anymore as they did a decade ago. There also are some risks with second mortgage to be aware of. Below is all you need to know about getting a second mortgage in 2017.
What Second Mortgage Lenders Are Offering
The majority of Americans get a mortgage to purchase their home. After you have made some progress in paying down your home loan, you may opt to get a second mortgage on the home. This is just another home loan that you can get to access your equity for a variety of purposes. Without a second mortgage, that equity is not available to you until you sell the house.
There are two types of second mortgage options:
- Home equity line of credit (HELOC): This is a line of credit that works very much like a credit card. However, in this case, your credit line is the equity in your home. You can opt to pull out cash on this credit line as needed. A HELOC credit line features an adjustable rate that can go up in future years. It usually is low at first because you are only paying interest on the loan. As time goes on, you need to pay on principal, and rates can also go up. So, bank on your home equity line payments going up as the years pass.
- Home equity loan with a fixed rate: This is lump of cash that you receive at once from your home’s equity. You pay a higher fixed rate than a HELOC, but you do know exactly how much you will be paying until the loan is paid in full.
Getting a Second Mortgage in 2017
You can choose from thousands of US lenders to get a second mortgage. There is no need to use the same lender as did your first mortgage. In fact, you will usually be better off if you shop around for rates and terms with several lenders. We recommend checking your bank, credit union and a mortgage broker with access to many second mortgage programs.
To apply for a second mortgage, you will undergo a similar process as when you got your first mortgage. The underwriter for the mortgage company will go over your credit, assets and debt. If you have good enough credit, you may be able to get an 80-85% LTV second mortgage. Make sure that you have been paying your first mortgage on time!
Today, it is more challenging to get a second mortgage than a decade ago, but many people can still get them. There was a time that you could easily get a second mortgage with a 630 FICO, but now, lenders often like to see credit scores in the 680’s.
Also note that you can no longer qualify for high LTV second mortgage. Back in the day, you could get sometimes a 125% LTV loan. Forget that today. Most banks lend 80-85%.
Stated income second mortgages are history as well. Be prepared to provide your lender with bank statements, pay stubs, W-2s and tax returns. If you are self-employed, you need a profit and loss statement and tax returns.
Another factor the lender will review is your debt to income ratio. Most second mortgage lenders want to see a DTI in the range of 28-40% depending upon the mortgage provider.
Employment history also is critical. A second mortgage is a serious debt, so the lender wants to ensure you have the ability to pay the loan. The 2nd mortgage lender generally wants to see that you have at least two years in the same work.
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.
References: More Stringent Requirements for Second Mortgage. (n.d.). Retrieved from https://www.mortgageloan.com/more-stringent-requirements-for-second-mortgages-1577