Find A Bad Credit Second Mortgage Loan - 5 Tips


There is not much that the typical person wouldn't do to qualify for a low-interest, low-risk loan that they could use to pay down high-interest debt or meet other unexpected (but important) expenses.

Fortunately, if this describes your own cash needs and you are a homeowner, you just might be in luck. You may be able to take out a bad credit second mortgage loan by using the equity in your home as collateral.

For people with low FICO scores below 600 or even 550, the whole idea of taking out a loan can feel pretty intimidating. That is because in most people's experience, having a low credit score means getting an automatic "no" from most lenders. Or, it means getting a "yes, but..." and then they slide a contract across the table that shows an obscene interest rate written right there at the top. Ugghhh!

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The good news is that, since second mortgages are a type of loan that is secured by collateral (i.e., the equity you have in your home), taking out a second mortgage does not have to be a difficult experience. You just have to know how the bad credit second mortgage industry works.

If you are in the market for a bad credit second mortgage loan, here are 5 tips that can help you get funded faster:

1. Second mortgage loans are also called home equity loans:

You may have heard of home equity loans before. Well, home equity loan is just another term for second mortgage. With this type of loan, the equity in your home (i.e., your home's current market value minus the outstanding first mortgage loan amount) serves as collateral. This means that the lender will face less risk than they would if they were to extend you a signature - or unsecured - personal loan.

2. This is different than a home equity loan of credit:

A second mortgage is not the same thing, however, as something else with a similar name: a home equity line of credit. With a line of credit, usually the loan is offered at a variable interest rate, versus a fixed rate with a second mortgage. Also, with a line of credit, you just borrow what you want when you want it - up to a certain limit. With a second mortgage, you borrow the money in one lump sum.

3. You can borrow up to 80% or more of the value of your home:

The concept of loan-to-value (LTV) refers to the maximum amount of money you can borrow under a new loan. For example, to figure out how much you can borrow on an 80% LTV loan, just add up the amount you want to borrow for the new second mortgage to the balance of your existing first mortgage. Then, divide the resulting figure into the market value of your home. If the number is under 0.8, you can use an 80% LTV loan to get the job done. If the result is higher, you'll want a higher LTV loan lender.

4. Special challenges if you have a bad credit score:

As you know, your bad credit score can make it more difficult to qualify for a loan. However, since a second mortgage is a secured loan, it means that your lender does have some security in the deal - namely the equity in your home being used as collateral. Therefore, the fact that you have a low credit score does not come into play as much. You may pay a higher interest rate, but you should qualify for a loan.

5. Create a stable of at least 5 bad credit second mortgage lenders:

The best thing you can do for yourself in order to find the lowest rate on a second mortgage is to apply primarily to lenders who advertise themselves as "bad credit second mortgage lenders" or as "bad credit home equity loan lenders." Make sure to apply to more than 2 or 3 lenders to increase your chances of approval.

Consider these 5 tips in order to successfully find a bad credit second mortgage loan deal with a low interest rate.


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