If you need a bad credit second mortgage, you should know that they exist, though you might need to work a little harder to find them. Lenders who specialize in the bad credit second mortgage market tailor their portfolios so that they can assume the extra risk these loans entail. As a result, you will pay higher interest and fees.
Second mortgages are secured loans that do not have first claim to the house. If you go into foreclosure, the primary mortgage will be paid off from the proceeds of the sale before the second mortgage is. That is why second mortgage interest rates are higher because there is more risk involved.
Because people with bad credit are at higher risk of defaulting on their home payments and going into foreclosure, bad credit second mortgage solutions are harder to find. Here are some of the things banks look for.
First, is there any equity in the home? A bad credit second mortgage ca often be secured when the homeowner owes 80 percent or less than the house is currently valued at.
Second, is there a low debt to income ratio? The more debt you have, the less chance you have of securing a bad credit second mortgage.
Third, do you have a solid employment history? If you do, you are more likely to secure a bad credit second mortgage.
Second mortgages can be used for a number of things. If you do not have the traditional 20 percent down payment, the second can secure the difference. Seconds are also used as home equity lines of credit to allow the homeowner to renovate the home or just spend the money.
It is also possible to secure a second mortgage above and beyond the value of the home. Though this was more common when the credit markets were flush, sometimes you can get loans totaling 125 percent of the value of the property. Lenders usually allow these loans when they perceive that the value of the property will rise in coming years. This could be because the real estate market is on the upswing or it could be because the new owner is investing in improvements.
You should also know that it is possible to take out third and even fourth mortgages on your home, though these are rare. The interest rate on each successive loan becomes steeper as the order of payment in case of a foreclosure is reversed.
Prior to its going belly up, Countrywide was the largest source of bad credit second mortgages. Now that they are no longer in business, it is more difficult to find these loans. If you need a bad credit second mortgage, you may want to simplify the search by turning to online providers. In this way you can fill out one form and have several lenders make offers for your loan. You can compare rates in one easy step.