Getting a second mortgage on your home is often a much better option compared to taking out an unsecured loan. However, like any other type of loan, a second mortgage is harder to get if you have bad credit.
But while it’s no easy feat, the good news is that it isn’t impossible either. In this blog, we’ll go over all the details, so you have a better chance of getting approval.
What is a second mortgage?
A home equity loan or second mortgage is when the bank lends you money against your ownership of the home. If, for example, your home’s market value is $200,000 and you’ve mortgaged $120,000. The remaining $80,000 is your equity, and that is what you give up when taking out a second mortgage.
Most lenders will let homeowners mortgage up to 80 percent of their home’s value. Taking out a second mortgage or going over 80 percent will usually result in higher interest rates.
What are the requirements for a second mortgage?
Getting approved for a second mortgage is challenging without a good credit score. Your credit score is a reflection of how trustworthy you are as a creditor, which is why a score below 680 reduces your chances significantly.
You’re more likely to get approved if you have high equity in the home you own—even more so if your primary mortgage is settled. You can still make a case if you’ve been up-to-date on mortgage payments, and your financial history doesn’t show any late payments over the last year.
Additionally, you might also be required to prove you have a job by showing verifiable income over the last two years.
What’s the alternative?
If you’re in urgent need of cash, cash-out refinance might work for you. This is different from a second mortgage because here, your loan and cash are consolidated and refinanced together. It’s much easier to qualify for a cash-out refinance because the lender assumes less risk.
If you do opt for this option, the lender will hold a second-lien position on your home. This means that if you’re unable to pay the loan, the primary lien can liquidate your home and get paid, and all leftovers go to the second-lien.
Improve your credit score quickly
If you’re looking to boost your credit score quickly, consider talking to a reliable credit repair consultant. At Oak Credit Repair, we specialize in helping clients improve and stabilize their financial position.
To learn more about our affordable credit repair services, call (888) 625.2264.