What is a Second Mortgage And How To Get A Second Mortgage Even With Bad Credit ?
Second mortgages are those in which you can take a loan as a property owner and take it out on an already mortgaged property. If you are reading this post, it can be safe to assume that you know what home equity is and how it works. However, for new readers, when you purchase your home on a mortgage, you will have no equity in the property. Still, as you slowly start paying off your mortgage, you will get back your equity on your property, and you can use that equity as collateral for loans. And that is how you can apply for a second mortgage.
Different Types Of Second Mortgages
If you are already paying for a primary mortgage, have good credit, and have built over 20% equity in your home. In that case, you may be eligible to get a second mortgage in the form of a Home Equity Revolving Line of Credit. HELOC loans allow you to borrow money from a revolving line of credit up to a specified limit. There’s also the option for a home equity loan, where you will get a lump sum amount of cash that you can pay back, similar to your first mortgage. This type of loan is accessible to Canadians with low credit scores or less equity in their property. At this point, you should know that both of these loans are secured against your home equity. As a result, second mortgages can be used to free up the equity in a property for cash flow purposes.
A Few Reasons Why One Can Choose A Second Mortgage.
Debt consolidation: You can use a second mortgage to consolidate your debts into a single payment. It can be beneficial to pay off higher debts such as student loans and credit card bills. You can group these debts together and clear them off at a lower interest rate.
Home renovation: The funds you receive from a second mortgage can also be used for home improvement projects. Also, you can choose to use the funds for a significant purchase, such as a car, or invest it in businesses. Renovating your home can increase its market value, and if you want to sell your property shortly, you can expect a profitable return on investment.
Buying a second property: Many choose to use a second mortgage as a down payment for a second property. If you’re thinking the same, you should know that a down payment of at least 20% is required for a second mortgage. The market price of a second home will almost be the same as your first property, including the cost of valuation, administrative charges, and legal fees.
If you need professional help living in Brampton or Mississauga, we will be happy to help.
How To Get A Second Mortgage Even With Bad Credit
The procedure of getting a second mortgage with a bad credit score is a challenging one. Lenders may deny your mortgage financing based on your credit history, even if you have substantial equity built up in your house. However, you can take a few steps to improve your chances of getting a second mortgage with a poor credit score. There are chances that a second mortgage can even improve your credit score. Below-mentioned is a few pointers of what you can do to attract lenders to finance your second mortgage request.
Maintain A Minimum Credit Score Of At Least 680
You must review your credit report when applying for a second mortgage with a bad credit rating. Traditional lenders will offer the best interest rates to borrowers with good credit scores and will only lend to individuals with a credit score of 680. If you get approved for a second mortgage with poor credit, there is a high chance that you will be charged a high-interest rate, and the mortgage terms will be more stringent. Try clearing any outstanding debts like credit card balances before applying for a second mortgage.
Your Current Mortgage Payment Must Be Convincing To Lenders
Before you choose to apply for a second mortgage with bad credit, we highly advise you to review your payment history with a mortgage agent. Lenders will look at your recent mortgage repayment history to identify how well you have handled the debt in the past and how likely you will be able to repay the second mortgage payment. If you've defaulted on your expenses in the last twelve months, you're likely to get your application denied.
You Must Have A Minimum Of Two Years Of Verifiable Income
Unlike a first mortgage, second mortgages have a high-risk rate for lenders to ensure that you've had a steady flow of income in the last two years. If you have bad credit and apply for a second mortgage without presenting any proof of verifiable income, there is a strong chance you will be denied mortgage financing. It can be quite a hassle being denied funding for a second mortgage, but it is not the end of the world; you can approach a private mortgage lender to secure your funding. Please note – obtaining mortgage financing from a private mortgage lender will mean the interest rates would be much higher than a traditional lender's.
Identify A Guarantor Or A Co-Signer
Having a co-signer or guarantor can help you secure mortgage financing if you have a poor credit history. Lenders will look at this as a way for borrowers to reduce mortgage default risk. A co-signer will sign all the documents, and their name will appear on the purchaser's title. They are liable for the monthly payments as well. A guarantor will guarantee the mortgage payments will be made and held responsible if the payments are not paid on time. They, however, do not own the property, and their name will not appear on the title. Don't hesitate to contact us today for more information on second mortgages.
