Second Home Mortgage and Loans from 2nd Mortgage Companies: Good Idea?
Also called “lien holders positioning”, a second home mortgage is essentially a loan secured against your property as collateral. To many people, this might sound like a bad idea, simply because they might not be informed, or knowledgeable enough. However, in reality, it makes perfect sense in certain circumstances. See this link for more information.
Second Mortgages Explained
First and foremost, let me explain how this whole concept works. In few words, this is an idea of using the value of your first home in order to get a loan and invest it in a particular undertaking. Sounds very convenient, doesn’t it?
Of course, there is something else you need to know. What does the word “second” principally signify here? Well, given that you already have one, it is pretty obvious, isn’t it? But, there is more to it. Basically, if you end up in default, this is not the loan that has priority over your home. That means that your first loan is also first on the list to get paid off.
Now it all sounds a bit risky, doesn’t it? Well, that is the whole essence of it – convenience and risk combined. A convenient risk, one might say. And have you ever heard a success story without some risk involved? Because, I haven’t.
Naturally, when you decide to give this idea a chance, you have to be prepared to say “yes” to some terms that might differ from those you got on your first mortgage. First of all, a 2nd mortgage is bound to have higher interest rates. Additionally, you will need to have a really good credit score and provide enough information to prove that you will be able to make regular payments.
However, while your overall score might get you rejected by your bank without even giving it a second thought, you shouldn’t get discouraged. There is a different solution that adds to the “convenience” part mentioned above. And it is becoming more and more popular.
A private mortgage is, as the name itself says, a loan taken from a private source. It is mostly useful for people who are struggling to get one the traditional way. Still, they also come in handy for persons who don’t have such problems. Simply because – this method has its own advantages.
While we are on this topic, what does it mean to “struggle to get a mortgage the traditional way”? Well, to be as straightforward as possible, this is when your bank refuses to approve your loan. Usually, this is connected to a bad credit score. In cases like this, private companies might be the only option.
Find out more here: https://www.thebalance.com/how-to-get-a-private-loan-with-bad-credit-315574
Private Second Mortgage Requirements and Benefits
Having established that the private method is sometimes a necessity and often just the most suitable choice, now it is time to get into a bit more detail. Because, when any kind of money is in question, let alone yours, you want to know what you’re getting yourself into. After all, one can never be careful enough.
So, if you are in the process of deciding if this is the right option for you, but you need some more information before taking that one final step, let me offer some more insight. I suppose that you are mostly interested in how you can qualify for this service and what you can gain from it. And that is exactly what I will try to explain right now.
As I have already mentioned, when getting a second home mortgage, it can easily happen that you get rejected by a traditional lender. Preparing a big pile of documents can be a nuisance, and even more so when you are highly likely to get turned down. Plus, self-employed people, and especially young adults, are usually denied this right because they either can’t prove the steady work history required by mainstream lenders, or their credit history is short.
With the option of private lending, the whole process is much more… well, people-friendly. Of course, this doesn’t mean you can just walk through the door, skip all the steps and leave the room with a bag full of money. It simply means that the process is much less complicated than the traditional one, especially when it comes to second mortgages.
The Whole Process Explained
So, let us briefly go through that process. First of all, in your initial application, the lender has to review some criteria and confirm that you are qualified. Among these criteria, priority is given to your home equity, your credit score, and your debt-to-income ratio. Let’s check these out.
Home Equity is, in its truest sense, that part of your home that you completely and unequivocally own. In other words, it is what you get when you deduct your overall loans from the value of your home. It’s quite simple to calculate.
Credit Score represents the creditworthiness of an individual. Keep in mind that the credit score requirements are slightly higher when second home mortgages are in question. However, that doesn’t mean that you don’t stand a chance.
Debt-to-income ratio is what you get when you divide the sum of your monthly debt payments with your overall monthly income. The less debt you have, the lower this percentage will be. Generally, lenders prefer a ratio smaller than 36%.
Now, after all these criteria have been taken into consideration and you have proved to be fit for this service, it’s time for the next step. The lender decides to do an appraisal (as explained here) of your home. Depending on where your home is located, this might cost a few hundred dollars.
Once you have gone through the whole application process, which can take up to thirty days, and you get an approval from the lender, there is only one thing left to do. What more could it possibly take, you’re wondering, right? Don’t worry, this one is as easy as it gets. Say yes to the loan and get your money.