A second mortgage is a type of loan which is secured against the same assets as the first mortgage (e.g. your house) but which is based on the equity accumulated within the property. Though difficult to qualify for a mortgage with bad credit, second mortgages may be the answer for some borrowers looking to improve their credit scores while taking out a loan and making timely payments on that loan.
Applying for a second mortgage with damaged credit makes you a much greater risk, in turn increasing the price of obtaining a loan; essentially, the cost of borrowing always correlates with the risk which a borrower presents to a lender. As such, the lower your credit score is, the higher your available interest rates will be, and more than likely you will encounter stricter loan terms as well. Below you will find a list of lenders that can help with you securing your mortgage or repairing your credit:
In terms of interest rates, second mortgages almost universally include higher rates than first mortgages. As a borrower adds to his or her debt by taking out a second mortgage, he or she consequently becomes a larger liability to lenders who then charge more to compensate. In addition, since a second mortgage is classified as “subordinate” to the first loan, in the event of a default any money that a borrower can pay goes to the holder of the first mortgage. Only once this is paid in full can other lenders receive their dues.
Before applying for any kind of loan, always do a thorough examination of your credit report. Everyone is entitled to one free credit report per year, and retrieving an additional report only costs roughly $35-40. If you discover a mistake in your credit history, be sure to resolve the issue prior to sitting down with a lender; these small improvements to your credit could secure you much better rates when the time comes to commit to a loan.
If you have accumulated a large amount of debt through credit cards, try to pay off enough debt to where you owe less than 30% of the credit card’s debt limit. If feasible, pay off your credit cards entirely.
In addition, resist the temptation of resorting to quick credit fixes by moving debt to a lower-interest credit card. Doing so can negatively affect your ability to acquire a second mortgage with bad credit, as multiple credit applications will lower your credit score.
For borrowers who cannot afford the terms of a second mortgage with bad credit, consider co-signing the loan with a partner. A family member or close friend can sign the loan application with you, allowing a lender to use his or her credit score as the primary consideration. As a result, borrowers may qualify for loans with much fairer terms than alone with bad credit.
When it comes to credit scores, having bad credit for a mortgage does not disqualify a borrower from getting a loan, although it certainly makes the loan more expensive. Thankfully for borrower with bad credit, many lenders are willing to loan to borrowers with poor credit at the cost of higher interest rates on the second mortgage. As a result, people interested in acquiring a second mortgage should always set aside time to compare mortgage rates, lenders, and loan terms.
When successfully managed, second mortgages can help you improve your credit history while reaping the benefits of your home’s accrued equity. Only borrow what you can afford to pay back and make all payments on time. With smart decision making and fiscal responsibility, second mortgages can be a step toward a prosperous future with more opportunity.
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