Some circumstances might force you to find alternative financing options, including home repairs and improvements. One of the best and ready options to help you out in either situation is applying for a second mortgage loan.
What’s a Second Mortgage Loan?
It’s a loan type where the borrower can get predetermined financing against the current home value. In this case, your home acts as collateral, meaning that defaulting can result in possession and seizure of the property by the lender. Second mortgages usually have borrowing limits and high-interest rates.How Does it Work?
A second mortgage allows homeowners to access additional funds depending on their home’s equity. This means that you can qualify for this Arizona mortgage loan depending on how much you’ve paid on your first mortgage. Second mortgages are usually used for home improvement and must be repaid within a specific duration and at a particular interest rate depending on the lender.Criteria to Qualify for a Second Mortgage Loan
You can qualify for a second mortgage if you meet the following criteria:- Have a credit score equivalent to 620 and above
- A debt to income ratio equivalent to 43% or less
- Decent home equity
How Much Can You Borrow?
You can borrow as much as you want with a second mortgage, although it’ll depend on your home’s equity. However, remember that your property will act as collateral to reduce the borrowing risk on the lender. Typically, you can borrow up to 80% of the market value of your property.Pros and cons
Second mortgages have pros and cons as listed below:Pros
– It’s easier to use your home equity to get funds for different uses – No need to use your savings for home repair and renovation – Lower interest rates than private mortgagesCons
– High foreclosure risk – You need considerable home equity to qualify – High closing costs In conclusion, these are some of the top pros and cons of second mortgages. These Arizona mortgage loans are classified into 2, i.e., home equity loans and home equity line of credit (HELOCs).Latest Articles
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