There are plenty of reasons you might need access to a large amount of money. Maybe you’re thinking about going back to school or you need to consolidate a few high credit card balances. Or maybe you want to do some repairs on your home. This might be the time to consider tapping into your home’s equity and using a second mortgage to take care of your expenses.
What Is A Second Mortgage?
A second mortgage is a lien taken out against a property that already has a loan on it. A lien is a right to possess and seize property under specific circumstances. In other words, your lender has the right to take control of your home if you default on your loan. When you take out a second mortgage, a lien is taken out against the portion of your home that you’ve paid off.
Unlike other types of loans, such as auto loans or student loans, you can use the money from your second mortgage for almost anything. Second mortgage lenders also offer interest rates that are much lower than credit cards. This makes them an appealing choice for paying off credit card debt.
How Does A Second Mortgage Work?
The equity you have in your home is a valuable asset, but unlike more liquid assets like cash, it isn’t typically something that you can utilize.
A second mortgage, however, allows you to use your home’s equity and put it to work. Instead of having that money tied up in your home, it’s available for expenses you have right now. This can be a help or a hindrance, depending on your financial goals.
To be approved for a second mortgage, you’ll likely need a credit score of at least 620, though individual lender requirements may be higher. Plus, remember that higher scores correlate with better rates. You’ll also probably need to have a debt-to-income ratio that’s lower than 43%.
It’s a good idea to consider all of your options and be sure you can keep up with payments before you choose a second mortgage. Whether you decide to take out a second mortgage or refinance, consider reaching out to a home loan expert like Real Estate Funding Solutions. Send us an email at info@realestatefundingsolutions.com to learn more.