Second Mortgage Loans

Requisites of Second Mortgage Loans

In addition to using for residing, a home owner can put his home to other uses also. He can borrow multiple loans using his home as security; they could be first mortgages, second mortgage loans, sometimes third and even fourth mortgage loans.

What are Second Mortgage Loans?

When a loan is taken for the first time with a particular property as security, it is called a first mortgage.  Any mortgages taken after that is subordinate mortgage. Loan taken for the second time with the same property as security is a second mortgage loan.  These loans are considered riskier than first mortgages and therefore lenders charge a higher rate of interest. In the event of loan default, the first mortgage holder has the first right to recover his money from the sale of property.

Requisites for Second Mortgage Loans

When a person applies for a second mortgage loan, the lender would first check the following:

  • Homeowner’s Equity

The equity of the homeowner in the case of a second mortgage is the difference between the current value of the property and the unpaid portion of the first mortgage.  If there is no significant equity, the lender may refuse the second mortgage request.

  • Credit Score of the Homeowner

Even if there is considerable equity, lenders of second mortgage loans are particular that the applicant should have a high credit score.  So, the applicant with a weak credit score should first improve the score and then apply for a loan.

  • Employment History

The lender would want the borrower to have stable employment as this would ensure that the mortgage payments happen on time.

Purpose of Second Mortgage Loans

A home owner can apply for a second mortgage for any purpose.  It could be to fund the renovation of his home, buying of a car or even to repay previous debts.

Though second mortgage loans are easily available, the homeowner should think twice before applying for the loan, especially if the purpose is to pay back loans taken earlier.