second mortgage loans

Second Mortgage

Second Mortgage Loans 101: The Complete Guide

Obtaining a second mortgage allows you to tap into your home’s equity and potentially increase your net worth or house value in the future. If you’ve never applied for a second mortgage before, you may have some questions about the process. Here’s everything you need to know.


What Is A Second Mortgage?

A second mortgage is a loan taken out in addition to the initial mortgage used to purchase your house, which accesses your home equity. Equity is the difference between the amount owed on your house and your house’s worth.


How Does A Second Mortgage Loan Work?

Equity is a valuable asset that often goes unutilized. However, a second mortgage allows buyers to tap into their equity and make that money available for other expenses.

There’s often a limit on the amount of equity lenders allow you to use. Generally, about 20% of your house’s value needs to remain in equity.

There are two main types of second mortgages to choose from. Home equity loans are a single lump sum of money, paid back through fixed monthly payments. Home equity lines of credit (HELOCs) are similar to credit cards. You have a credit line with a repayment period.


Common Uses for Second Mortgage Loans

Home Improvements

Second mortgages are often used for renovations and paid back when the house is sold for more than the purchase price.

Avoiding PMI

Second mortgage loans are excellent for avoiding private mortgage insurance due to cost, a lack of tax deductibility, and other factors. Using a “piggyback loan,” a second loan taken out simultaneously as the initial mortgage, can help maintain a home-value-to-price ratio of at or below 80%.

This is called an 80-10-10 mortgage, as the initial mortgage is 80% of the price, the second is 10%, and the down payment is 10%. This avoids PMI, which is required for purchases with less than 20% down, and second mortgages are counted as down payments.


How to Take Out a Second Mortgage

There are multiple options for taking out a second mortgage:

  1. Use a local bank or credit union.
  2. Find a loan originator.
  3. Visit an online lender.

For any option, you’ll need to provide evidence of having delivered first mortgage payments on time and other documents related to income and debt.


Apply for a Second Mortgage Today

Mortgage Solutions Financial makes taking out a second mortgage and other home services quick and easy. Our services are designed to help families purchase new homes and reduce payments and interest on existing mortgages. Get started with the process and apply today.