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Sometimes you may need a lot of cash, but can't find any other way to get it, except by pulling equity out of your home. Here's where a second mortgage can help you. This article gives you an overview of second mortgages and covers the following aspects:

Do it yourself!
Check out whether second mortgage
is the right option for you


What is second mortgage?

It is a loan taken out against your home after you have already taken out a first or primary loan. The equity that you have built up in your original home is utilized as the collateral to take out the second loan.

A second mortgage is considered as the subsidiary to the first one. In case you default on both the loans, it is always the first mortgage which is repaid first. The second mortgage is taken care of only after the first mortgage is being fully repaid.


When should you choose a second mortgage?

There are situations when you may want cash out some of your home equity by taking out a second mortgage. They are
  • You have accumulated a large amount of debt and need to pay them off.
  • You wish to invest elsewhere or you may be begin a new business.
  • You want to avoid paying private mortgage insurance. This is possible only when you get a second mortgage that makes up 20% of the home purchase price.
  • You may want to spend on expensive items such as a new car, new property, or new appliances.
  • You want to remodel or add to your home.


How much can you borrow?

A second home loan allows you to borrow based on your home's equity. The amount of the loan that you have already repaid is the amount of equity that you have built up in your home. Your equity symbolises your home ownership.

Usually, majority of the lenders offer you a second mortgage loan up to the point where the loan to value (LTV) ratio of the first and the second loan together amounts to 85% of the appraised value of the home. However, there are lenders in almost all states, except Texas and West Virginia, that allow you to take out second mortgages equal to 125% of the appraised value.


What are the possible rates, terms and options?

Interest on a second loan will be higher than with a first loan. The reason behind this is that in case you default, the original mortgage is repaid first and the second one is repaid thereafter. So, it is quite evident that more risks are attached to a second mortgage than in case of the first mortgage.

Second mortgages are available as adjustable rate home equity lines of credit and fixed rate home equity loan. The lender will quote you a rate depending upon your credit score, total loan to value ratio, and current market trends. The loan term will vary from 15 to 30 years depending on the option you choose. But in general, a second loan is offered for a shorter time period than a first loan.


How do you get a second mortgage loan?

In second mortgage, you use the same process you used to find your first mortgage. You need to shop around for a suitable loan by approaching different lenders. You can simply fill out a free short no-obligation free form to get quotes from community ranked lenders on this site. Then you should compare the quotes, find the offer that will work best for you. Finally, you need to fill out the necessary paperwork to apply for the loan. The lender will conduct an appraisal of your home in order to determine its current value, complete all the steps necessary to process the loan, and arrange for the loan closing. At closing, you will sign the note and security instrument required by your lender. You will be liable to pay the closing costs for the second mortgage also, similar to what you paid while obtaining the first mortgage loan.


What happens to the second loan if you refinance the first?

When you refinance the first loan after getting the second mortgage loan, the second loan still remains in its subordinate position. Your refinance lender ensures that the refinance loan becomes the primary loan and the second loan remains subordinate to the refinance loan.

A second home loan gives you the chance to tap handsome amount of money in exchange of home equity. Moreover, you may be able to deduct some of the interest from your income taxes. However, there are a lot of additional costs involved with taking out a second loan.

In addition, if you default on the second loan, you may lose your home in a foreclosure. So, before making the decision to take out a second mortgage loan, you should make proper financial planning. You need to find out the total monthly obligations of taking out the two loans and check out whether it is within your affordable range or not.


What are the limitations of a second mortgage?

Despite its various uses, a second mortgage is fraught with some limitations. These limitations are -
  • High chance of losing the home - By taking out this loan, you add to the risks of losing your home. If you fail to make payments on your second loan, you may end up losing your home. You need to ensure that the purpose for which you are taking out the loan is worth the risks that you are taking.
  • Rate is higher than the rate on first loan - The rates on second mortgage are relatively higher than the rates on the first mortgage loans. This is so because in the event of default, it is the original mortgage which is repaid first. The repayment of the second mortgage is taken care of later.
  • Fees may be hefty - Sometimes, a second mortgage may involve hefty fees. This adds to the costs of taking out the second loan.
Related Articles
Related Forum Discussions
adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

I agree with what George has said in this regard. It would be quite difficult for you to qualify for a cash out refinance on an investment property.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have first loan $ 320,000 and line of credit $ 355,000 which has been taken by my son 3 years ago and it is on his name. Now I am in process to modify my first loan. After modification of first I know that second going to be my biggest problem, I want to know what are my options about second.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

As your son has taken the line of credit, you can ask him to negotiate with the lender and apply for a loan modification. Depending upon your son's financial situation, the second lender will let him know whether or not his loan will get modified.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

OK Niicss, my son's financial situation is very bed. And lets assume that negotiation is not in favor to me. Can he do bankruptcy if value of the house Appraised appx. $420,000-$450,000 and first loan amount is $ 320,000 as I mention earlier, and second is $355,000.
Or if I won't be able to pay monthly payments for second only is there any alternatives in that situation.

Thanks

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Your son can file Chapter 13 and get rid of the second loan with the help of lien stripping. As far as the first mortgage is concerned, he will get a repayment plan to pay it off.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Do you sell any of your 2nd mortgages? I am a buyer

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Are you planning to a second property? Your query is not clear. Please explain.

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amandacluett's picture
amandacluett | Joined: March 1, 2010 06:32 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Despite the world crisis, we can still purchase our own home with a flexible rate and low interest rate. There is still hope for a bright future.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We bought our house with cash and have no mortgage can we get some extra cash by adding a mortgage[u:712cd72e01][/u:712cd72e01]

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have a first and second mortgage, set up as 80/20 loan when we bought our home. We are hoping to relocate to another city, but now owe more on our home than what it is worth. The sale of the home would cover all of the first mortgage and likely all but $5000 to $10000 of the second. What happens with the second mortgage? We realize we still owe it and don't want to default, so does this mean we keep paying it, or get a personal loan to cover it so it disappears? Do you know if the 2nd mortgage company also has to be alerted ahead of time so that the amount paid on the loan is paid to principal and not as though we are paying ahead (thus, the interest too)?
Thanks!

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

The second mortgage dues won't disappear. You will be liable to pay it off to the lender. You can negotiate with the lender to get a payment plan to pay off the loan. If you are selling off the property, then you will definitely have to inform the second lender about the same.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I want to sell my home to upgrade to something bigger how does this work and how do i know what I should be looking for price wise for the new home?
How do I estimate what I would be able to afford after selling.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

You can list your present property in the market in order to sell it off. If you've a mortgage on the property, then you will have to pay it off in full immediately after your property is sold off.

You should look out for a property which you would be able to afford. You can check out the given calculator in order to check out how much you would be able to afford:
http://www.mortgagefit.com/calculators/howmuch-afford.html

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jessica

My husband and I are having financial issues and we want to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] our second home but we can't seem to find a bank that would help us because we don't have great credit. Our second home has a large amount of equity but we can seem to touch it..I really do not want to sell it. Also, we are renting it out because we can not afford the monthly payments. I was wondering what would you suggest we should do? Thank you

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

As you do not have a good credit score, it would be quite difficult for you to qualify for a refinance though you've equity in the property. I would suggest you to improve your credit score first and then apply for a loan.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What do I need to qualify for a second mortage?

How much down?

Does it matter the Square Footage compared to our first morage?

Do I have to pay all the cost and fees out of my own pocket or can I ask the bank to may some of them?

Is a second mortage different than a investment property loan?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

you need equity in your home for a second mortgage lien to be placed.

i think you're confusing "second mortgage" with "another mortgage" - a second mortgage is literally a second mortgage, after the first, on your home that you reside in currently. it seems like you are asking about a mortgage for a different property - that's a whole different discussion.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Dear Jessica. My house has first $ 320,000, and second $355,000. The first loan is under the process of Modification (Government Home Protection program). We are 3 months behind on the second mortgage. To day we received a letter from second mortgage bank "Acceleration Warning Notice of Intent to Foreclose" First and second are different landers. Question 1. Can this situation influence negatively to the modification process? 2. After bankruptcy discharged can second mortgage lander foreclose the house. 3. I have not done anything yet on this situation can you please give me advise what to do?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jony!

Welcome to forums!

If the second mortgage lender forecloses the property, then you will be losing it. Thus, in that case, getting a loan modification on first mortgage will not be of any help. After a bankruptcy filing is discharged, the second lender can foreclose the property as he holds lien on the property.

I would suggest you to contact your second lender and apply for a loan modification immediately. Depending upon your situation, the lender will consider your request and let you know whether or not you will qualify for a modification.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Do you do HEM on Rental Homes?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Sheila,

This is not a mortgage company. This is a community wherein people discuss their mortgage issues and get suggestions from the expert. If you want a [url=http://www.mortgagefit.com/home-equity.html]home equity loan[/url], then you will have to contact the local lenders and check out if they can help you with it. You can also speak to the lenders of this community and seek a no obligation free mortgage consultation. This will help you know whether or not you would get a mortgage.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We would like to consolidate debt from credit cards and a personal loan. We do not have a current mortgage. What is the best way to borrow money using our home equity...a home equity loan, 2nd mortgage, or HELOC? We've found that some lenders will not fund Home equity loans when there is no current mortgage. We have excellent credit.
Thanks.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi clutei,

If your property is free and clear, then you can take out a normal conventional loan. You can use the money from the loan to pay off the credit card debts. With a good income and excellent credit, it will be quite easier for you to [url=http://www.mortgagefit.com/Mortgage-Basics/do-i-qualify-for-a-mortgage.h... for a mortgage[/url].

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jessica,
I own my home outright, paid cash for it. Can I take a loan against my home? Since I have never had a first mortgage what would this be called and how do I go about applying for one?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Malia,

As you own your property outright, you'll be able to take out a mortgage on it. You'll be able to take out a first mortgage on it provided you meet the required criteria of the lender.

You will have to shop for the mortgage and apply for pre-approval from the local lenders. The lenders will let you know whether or not you would get a mortgage. They'll also let you know the type of rates and terms you would receive. You should seek a no obligation free mortgage quote from the lenders of this community and check out the type of rates and terms you would receive.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I just got my first home back in 2008. I would like to take out a second mortgage to pay off my student loans and some credit cards. Do I have enough equity built up to do this since my purchase is so new?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

In order to get a second mortgage on your property, you should have equity in it. Unless you've 20% equity in your property, you won't be able to qualify for a second mortgage.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What a great resource!

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I own a home that I owe roughly 235,000 on. It has as estimated market value of between 270-280 thousand dollars. I currently have about 35,000 in unsecured debt and would like to pay it off. Would there possibly be a second mortgage that would help me?[size=12:2e6f8518fd][/size:2e6f8518fd]

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome bigboy,

Rather than taking out a second mortgage, you can go for a cash out [url=http://www.mortgagefit.com/refinance.html]refinance[/url]. This will help you in cashing in the equity that you have in your property which can be used to pay off the unsecured debt. If you take out a second mortgage, you would be liable for paying two mortgages every month. Considering that, it would be a better option to refinance the loan.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Madam, i have one house on 2005 with a loan of rs. 10.50 lakhs, now outstanding of the loan is rs.9.50
Now, i am looking for second home for that rs.12lakhs sanction should i go
for second home or should i clear first one

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi pravin,

It would be better if you could pay off the first mortgage prior to taking out the second loan for a new property.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Our mortgage is 105,000 at 9.25% interest (bought in 2005 with no jobs hence higher mortgage, and house has no value) We don't live in the home atm (is vacant) and would love to fix it up and sell it. I went to my bank to refinance and they told me that they don't finance on homes that need fixing up. It needs a new roof, siding, etc. How do I find a loan that will refinance to get my interest lower and pull money out to remodel the house?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jennifer!

Welcome to forums!

You can contact the other lenders of your area and apply for a loan. However, if you don't have any equity in your property, you won't be able to refinance the loan to lower your interest rates.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am trying to refi (30yrs w 10k cash out) to repair & remodel a bathroom & lower my payment. Currently owe 83,800. My payment would drop from 885 to 661. My appraisal came in less than expected. Now my mtg co says I have to pay upfront PMI because the LTV is 83%. This is deducted from the 10k leaving me only $8,375. Other closing costs = $4,700 + $1,339 prepaids/escrow + 400 pd for lousy appraisal. Am I really paying over 6k to get only 8k???? I have no other means of getting the cash I need and probably not enough equity to get a 2nd mtg. What do you suggest? I haven't agreed to new terms yet. THANK YOU!

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The closing costs may vary from one state to another. As you haven't agreed to the terms and conditions of the lender, you should speak to few other other lenders of your area and check out what type of rates and terms you might receive from them.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

HELLO JESSICA, I HAVE A HOME WITH APPRAISE FOR 134,000, THEIR IS NO LOAN ON THIS PROPERTY, SHOULD I NOT BE ABLE TO TAKE OUT THE EQUITY ON THIS PROPERTY?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi CHARLES,

As there is no mortgage on the property, if you meet the required criteria of the lenders, you will be able to get a mortgage using that property as a collateral.

Thanks

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aennycarey's picture
aennycarey | Joined: September 24, 2010 04:09 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Second mortgage is the best way to get paid for their home equity. You could spend lots of money, but can not use it through credit cards or otherwise. Second Mortgage can help meet demand. This is nothing but a loan against their house, where there is already a primary mortgage, it is also a way to cash equity in your home.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I owe approx 9000 on my home plus 10000 in credit cards and some high interest student loans. Is it possible to take out a loan to pay all that off using my house so I only have one payment instead of several? Also I recently had my home appraised, could I use that appraisal or would I have to still pay for another?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi just wandering if you can take out a second mortgage on my home from another country

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi julz,

If you've equity in your property, then you'll be able to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] the mortgage and pay off other debts in full. Once you pay off the other debts, you will be liable for paying the mortgage on your property only. However, you will have to go for a new appraisal if you wish to refinance your existing mortgage.

To guest,

There are lenders who operate internationally. You need to contact such lenders and apply for mortgage. If you meet their required criteria, you'll be able to get a second mortgage for your property.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I HAVE A 2ND HOME WITH NO MORTGAGE, ALL EQUITY HOW CAN I TAKE OUT 85% OF THE EQUITY?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi SPENCE,

If you don't have any other mortgage, then you can contact the local lenders and apply for a mortgage using the second home as a collateral. However, if there is a mortgage on one of your properties, then it will be difficult for you to get a mortgage. Moreover, if you take out a 85% of the equity, then you'll have to go for a private mortgage insurance (PMI).

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you have a both mortgages on a home and sell the home. I am very aware that the 1st mortgage must get paid off, but what about the 2nd? Is it the bank's responsibility to pay off the mortgage or the home owner? The reason I ask is my mother sold her house and with the 2nd loan had given me money, I thought that by selling the house the mortgages would be paid. It paid off her 1st mortgage but not her 2nd right away and she can still make the payments. Is this cause she asked to continue making the payments or the bank just isn't aware that the house was sold? I'm not currently talking to my mom so if anyone can help I would appreciate it. Thank you!

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jerseypm's picture
jerseypm | Joined: November 15, 2010 10:01 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

First you have to make sure that the loan she recieved was a second mortgage and not a personal loan. I find it very hard to believe that She would be able to seel the home with a mortgage attached to it. When a new purchaser buys a home a title search must be done to assure the buyer that their are no liens attached to the house. So it is possible that she recived a personal loan and not one attached to the house.
Hopefully what she sold the house for is greater than what she owed and she can just go ahead and pay off the loan. Look at the HUD1 it is a paper that she would have recieved at closing that detils where all the money goes.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i'm paying cash on a short sale house in florida because of time restraints but would like to get a mortgage on it to free up my cash what are my options

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi larrycc,

You will have to contact the local lenders and start applying for loans. If you meet the required criteria of the lender, then you'll get a mortgage. You should have a good credit score, stable financial situation and the required debt to income ratio in order to get the mortgage.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have a FHA Loan owing 181,000; due to realestatel market being so low our home is worth about 140,000, we need to do some fixings to the house, what are our chances of obtaining a second mortgage loan or HELOC loan

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome idhelp,

As you don't have equity in your property, you won't be able to qualify for a second mortgage or HELOC.

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