Getting a Second Mortgage with Bad Credit
Are you looking for a way to lower your monthly costs and improve your credit score at the same time? You may be able to accomplish both goals at once by consolidating your high-interest credit card bills into one payment with a lower interest rate. It’s possible that getting a second mortgage with bad credit may be the right solution for you.
What Is a Second Mortgage on Your Home?
A second mortgage is a loan that you take out based on the equity in your home (the difference between what you owe on it and its current value). The loan is owed in addition to your current mortgage, so you will have two payments to make each month.
Banks and other lenders consider this type of mortgage riskier than a primary mortgage. As a result, they charge higher interest rates to customers.
Types of Second Mortgages: Home Equity Loan vs. Home Equity Line of Credit
A lender can structure your second mortgage in different ways, depending on your needs and how you want to use the money you’ll be freeing up from the equity in your home. There are two options: a home equity (HE) loan and a home equity line of credit (HELOC).
A HELOC is a line of credit secured by the equity in your home. The bank will determine the amount of your line of credit based on how much you owe on your home and its value, up to a certain cap. A number of lenders use the 80% level as the cap for a HELOC, so they aren’t in the position of lending money based on the full value of a home.
For example, if your home is valued at $250,000 and the amount of your mortgage is $150,000, you have $100,000 in equity in your home. This doesn’t mean that your lender will approve you for a $100,000 HELOC, even if you had excellent credit.
Instead, the lender will calculate 80% of the value of your home ($250,000 x 0.80 = $200,000). This is the maximum amount you can borrow against your home. Next, the amount you currently owe for your mortgage will be deducted ($150,000), leaving $50,000 as a maximum amount you could be approved for when applying for a HELOC.
On approval, you can access these funds when you need them, in any amount you need. You can use them for any purpose you wish, and you pay interest only on the money you have borrowed. The funds you borrow from your HELOC are like a credit card; you can borrow up to your credit limit and as you pay the money back, those funds are once again available to you.
A HELOC is a good option if you want to borrow money for small projects or you are working on a home improvement project where you will need to access the funds in stages.
Home Equity Loan
An HE loan is calculated based on a set amount. You apply to borrow a certain amount of money from the bank or the lender, and you are required to take the full amount at once.
If we use the same example as in the HELOC above, if you were approved for a loan of $50,000, you would take the funds immediately. Interest would start to run on the entire amount from the day you receive the money. You would have a set payment schedule for paying off the loan but no opportunity to access additional funds as you pay it off.
This option is best for you if you are interested in consolidating higher-interest debt into a lower payment or if you have a large expense in mind that you need to fund, such as a large home renovation or even your children’s college education.
Top Lenders for Getting a Second Mortgage with Bad Credit
Lenders see customers in many types of financial circumstances applying for second mortgages. Don’t let a less-than-stellar credit history make you hesitate to apply for the funding you need. The following lenders are willing to work with customers looking for a second mortgage with bad credit, but this list is not meant to be an exhaustive one of all lenders in this category.
This lender can trace its history to 1863, when the First National Bank of Cincinnati opened for business. Today, U.S. Bank has grown through a series of mergers to become the fifth-largest bank in the country, with assets of $462 billion and 73,000 employees ready to serve its customers (December 31, 2017).
Talk to one of U.S. Bank’s experienced loan officers about your options or apply online for a second mortgage.
CIBC US offers flexible mortgage financing to customers in all 50 states. Its mortgage bankers are all experienced, with an average of 20 years in the business, so you know you’ll get advice that’s right for your situation. Reach out to CIBC US online to get started.
The Milford Bank
If you’re looking for competitive rates on second mortgages of up to $500,000 with flexible terms (examples shown on their website are five to twenty-five years), you’ll want to find out what the Milford Bank can do for you. This Connecticut lender will approve loans up to 80% of your home’s value.
OneWest Bank is a division of CIT Bank, N.A. (Member FDIC, Equal Housing Lender), with 70 branches in Southern California. OneWest’s parent company has been in business since 1908. This financial holding company has $50 billion in assets (approx.) as of June 30, 2018.
Customers who deal with OneWest Bank can rest assured they will receive personalized service for their mortgage needs. This lender specializes in “local real estate and mortgage services,” which means its lending officers know the market and will be able to offer the personalized solutions you need to help you improve your financial situation with a second mortgage with bad credit.
Farmers State Bank
Farmers State Bank was established in 1915 and has been serving the needs of customers in Northeast Indiana and Southwest Michigan since that time. The bank works with customers who want to consolidate finances with a second mortgage up to 80% of their home’s value.
Getting a second mortgage with bad credit can be time-consuming, but if you look hard, you’ll find a bank or lender willing to help you out. Try some of the banks listed above, and make sure to get several quotes before ultimately choosing a second mortgage.