Second Mortgage

A second mortgage is a great option for homebuyers to consider if they don’t have a 20% down payment and want to avoid mortgage insurance. It’s also great for homeowners to consider if they need to access equity from their home but they don’t want to refinance their first mortgage.

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What Is A Second Mortgage Loan?

A second mortgage is a home loan in the second position behind your first mortgage. You can obtain a second mortgage when buying a home or after (if you are looking to pull cash from the equity you have in the home).
When buying a home, a second mortgage is an excellent option to consider so that you can avoid paying mortgage insurance if you have less than 20% down. If you already own a property and need cash out to pay off high-interest debt, you may want to consider a second mortgage if your first mortgage has a low interest rate.

Second Mortgage Requirements

Here are the six basic requirements for obtaining a second mortgage.

Credit

If you are looking into a second mortgage, you’ll need a credit score of at least 680 or higher. The ideal loan applicant will have a credit score of 720 or higher. The credit score requirement for second mortgages is directly impact by the Combined-Loan-To-Value (CLTV) ratio.

Income

The debt-to-income(DTI) for second mortgage loan applicants should be at or below 40%. When an underwriter calculates your income requirement to figure our your DTI they’ll include all your debts, along with your new second mortgage payment. If your DTI is below 35%, you’re in good shape.

Equity

The equity requirements for a second mortgage are going to depend on your credit score. Higher credit scores will get the least restrictive equity requirements. For the most part, underwriters will want at least 10% equity in the property post purchase or refinance however you might be able to get that down to 5%

Appraisal

You will need to do an an appraisal if you are applying for a second mortgage, that is an underwriting requirement. Before you have the appraiser come out, be sure to get the house ready. Treat the appraisal inspection as if you are selling the home to maximise value. Everything should be spotless.

Asset

Not all second mortgages have an asset requirement but some loan applicants might be asked to show two to six months of liquid assets. That could be in a checking or savings account, investment account or sometimes underwriting will accept an retirement account like a 401k.

Documentation

Underwriting will require full income documentation before issuing a second mortgage approval. That means you’ll provide documentation to prove your income for the last two years. If you receive commission or bonus income, you may be asked to provide additional documentation.

Who Should Consider A Second Mortgage Loan?

Anyone with less than 20% down should consider a second mortgage to avoid mortgage insurance. Also, homeowners with a low rate on their first mortgage but who need to take some cash out should consider a second mortgage.

Second Mortgage Rates

Second mortgage rates are higher than first mortgage rates since the loan is in the second position behind your first mortgage. There is no exact rule of thumb regarding the spread between first and second mortgage rates, but usually, the difference between the two is somewhere between 3% and 5%.

Homebuyer And Homeowner Solutions

If you’ve looked around our website, you’ve noticed that low rates, fast closings, and exceptional service are at the heart of what we do. That commitment extends to our second mortgage program as well.

Comprehensive Evaluation: If you are interested in a second mortgage, we’ll conduct a comprehensive evaluation to determine whether it is a good solution for your short and long-term financial plans.

Industry Low Rates: We strive daily to deliver industry-low rates to our clients. That applies to all of our loan programs, including second mortgages.

Efficient Process: We stay up late at night thinking of ways to make the loan process more efficient for our clients. We’ll do our best to close your transaction quickly.

20+ Years Of Industry Experience

That’s what’s behind California Mortgage Finder. A newly licensed call center agent, or a loan officer who doesn’t know the difference between a margin and an index, can’t provide the same level of expertise as we can. If your loan officer thinks the Fed sets mortgage rates, you should find a new loan officer.

Second Mortgage Benefits

Here are the second mortgage benefits a loan applicant might see.

More Purchasing Power

With a second mortgage, you might be able to purchase a higher-priced home.

Flexibility

A second mortgage gives you flexibility and opens the door to opportunities.

No Mortgage Insurance

Consider a second mortgage if you are buying a home with less than 20% down. You’ll avoid the extra cost of mortgage insurance.

Access Your Equity

A homeowner can access their equity with a second mortgage. No need to refinance and lose that low rate on your first mortgage.

Pros And Cons Of A Second Mortgage

Here is an overview of the Pros and Cons of a second mortgage.

Pros

Second mortgages allow you to avoid FHA MI or PMI.
If you own your home, a second mortgage allows you to tap into your equity.
Compared to credit cards, interest rates for second mortgages are generally lower.
You can sometimes pay off a second mortgage faster than a first mortgage.

Cons

You’ll have two loans attached to your home instead of one.
Second mortgage rates are higher than first mortgage rates.
Underwriting guidelines for second mortgages are stricter than first mortgage underwriting guidelines.
You might need an appraisal, and there are costs associated with a second mortgage.

Is A Second Mortgage Right For You?

The best way to determine if a second mortgage is right for you is to educate yourself on the different options and then make a detailed list of each program’s benefits and drawbacks.

A second mortgage can provide a significant benefit in the right situation. Anyone looking to avoid paying MI or PMI should consider a second mortgage. And if you are looking to get cash out from your home but don’t want to touch your first mortgage, then a second mortgage is a perfect fit!

Explore Some Of Our Other Mortgage Programs

Conventional

A conventional mortgage is the most common mortgage program. Fannie Mae and Freddie Mac set the base guidelines.

FHA

FHA is a powerful program for those with less-than-perfect credit and a low down payment (or little equity).

Bank Statement

The Bank Statement mortgage is a great alternative to the traditional mortgage programs. Competitive rates and flexible guidelines.

VA

The VA mortgage program is one of the best in the industry. It offers industry-low rates; for some applicants, no down payment is needed.

Second Mortgage Loan FAQs

Here are some common questions and answers loan applicants have about the Second mortgage loan program.

Can I Get A Second Mortgage On A Rental Property?

Yes, getting a second mortgage on a rental property is possible. Rates are higher, and the requirements are stricter.

Is Second Mortgage Interest Tax Deductible?

Please consult your tax professional to determine if second mortgage interest is a tax deduction.

Is Title And Escrow Services Needed With A Second Mortgage?

Yes, title and escrow services are required when obtaining a second mortgage.

How Long Does It Take To Close?

The usual time frame to close a second mortgage is 25-30 days.