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How to Get a Second Mortgage With a Bad Credit History

07/20/2010

It's difficult to get any kind of loan if you have a poor credit score, but one of the most difficult loans to get is a second mortgage. Second mortgages are typically more difficult for creditors to collect in the event of borrower default. This makes lenders nervous about providing a second mortgage to an applicant with bad credit, and many homeowners find themselves turned down for this type of loan.

There are ways to secure such a loan, however, even in spite of a poor credit rating. Keep the following three tips in mind when applying for a second mortgage.

Stick with your original lender. You're more likely to be denied a loan with bad credit if the lender has no history with you. Conversely, the lender who services your current mortgage will be more willing to offer you a second mortgage because, despite your credit score, you've already proven yourself by making timely and consistent payments on your primary mortgage. Your lender may even be excited at the opportunity to work with you again. If at all possible, seek a second mortgage from the lender who services your current mortgage.

Prove yourself. Willingly disclose your financial situation to your lender with as much detail as you can. You know your own finances, and you know that you can manage the additional monthly payments of a second mortgage. Prove this to your lender. Show him or her whatever paperwork or other items necessary to make your case. Do whatever research you can to learn what he or she expects to see.

Know what you're getting into. Understand the loan you are applying for--that means interest rates, closing costs, and other fees. It's always important to know what you're doing before you sign any financial contract, but when seeking a second mortgage with a poor credit history, it's especially important. If you're startled by an unexpected cost, your lender may lose faith that you know your own financial situation. He or she may believe that your money isn't in order and that you aren't a healthy risk. Demonstrate to the lender that you are responsible and that you can afford the loan, closing costs and hidden fees included.

Getting a second mortgage with bad credit is difficult, but it's possible. Show that you are working to correct whatever financial issues you've had in the past and that you are ready to take on another mortgage, and your lender will likely be more than happy to work with you.

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