While they may not be nearly as easy to get as a regular loan, it is good to be aware that you can find a bad credit second mortgage if you happen to need one. The reason this is possible is that those lenders who make these riskier loans have financial portfolios that allow them to absorb more risk than more traditional lenders. Of course, this comes at the price of higher fees and interest rates, but at least you have the option.
A second mortgage is a secured loan that you take out against your home. However, if a foreclosure should happen, any proceeds will be put toward the first mortgage before any of it goes toward the second mortgage. In theory, the only way you could fully pay off a second mortgage is by selling your home for twice as much as it’s worth, and that’s why they are so risky.
Generally speaking, the people who need to take out another mortgage on their home are the ones who couldn’t make the first mortgage work; meaning they tend to already have shaky credit. This is one of the reasons why a bad credit second mortgage can be more tricky to find. However, there are some things lenders will look for:
1. Equity. The more equity you have in your home, the better. It’s possible to get a bad credit second mortgage if you 80% or less than the current value of your home.
2. Debt ratio. Different lenders have different rules, but the lower your debt is when compared to your annual income, the more likely you will be able to get your loan.
3. Employment history. A lender will feel more secure in giving you a second mortgage if they are convinced that you will have the means to pay it back.
There are several uses for a second mortgage. For example, if you are unable to come up with the typical 20% down on your new home, you may be able to use the loan to pay for the difference. However, these types of loans are most often used as a way to get money for other purpose. Sometimes the money may go for home improvements, but they can also be used to buy things the home owner wants.
Another thing to keep in mind is that you can often borrow more than the appraised value of your home. This is getting harder to do in today’s economy, but in some cases you can get a loan that’s equal to 125% of your home’s value. It will be easier to get that amount if your property is likely to increase in value, for whatever reason.
If you are having a difficult time finding a lender to give you a bad credit second mortgage, then going online is a good idea. Not only will you be able to find all kinds of lenders willing to work with you, you will also be able to compare their terms and rates before deciding which one you want to get a loan from.