Most home buyers will have to take out a mortgage in order to complete the overall, home-purchasing process. Sometimes, however, there will be a situation that necessitates the procurement of a second mortgage. Second mortgages can be extremely beneficial to a home buyer in certain circumstances. They can be used to make some improvements to your home, and may come with certain tax benefits as well.

What exactly does a second mortgage entail? In contrast to the primary mortgage taken out, a second mortgage is a loan that is secured by the value of your home. Just like the primary mortgage, there are certain second mortgage requirements that need to be fulfilled before properly qualifying.

Before going ahead with a mortgage lender, make sure you do your research about the second mortgage requirements. If you are inquiring about taking out another mortgage, here are the six second mortgage requirements and qualifications:

Requirement #1: Mortgage types

Before you qualify for a second mortgage, it is extremely important to familiarize yourself with the types available. Each type may have similar yet ultimately different second mortgage requirements. These generally fall into three variations; home equity loans, home equity lines of credit, and piggyback loans. Home equity loans are ideal for scenarios where you borrow a specific amount of money, and then pay it back over a predetermined amount of time.

Home equity lines of credit, or HELOCs, set up a line of credit that you can draw from, as opposed to borrowing a fixed sum of money. Finally, a piggyback loan is considered to be an addition to your primary mortgage, where you essentially use two mortgages to make a purchase. Determine your situation first before deciding which second mortgage to take.

Requirement #2: Verifying income

Since mortgage lenders are very particular when it comes to approving a second mortgage, they will first take a look at your finances. This is done to ensure that you can actually afford the payments that come with the loan. Lenders will usually ask to look at several of your paystubs or bank statements as a first step.

The more dependable your source of income appears, the more successful your chances will be in qualifying for the second mortgage. The last thing you both need is to take out a second mortgage on a home, only to find out down the line you can’t afford it!

Requirement #3: Available equity

Similar to inspecting your finances, lenders will ask to see how much available equity you have. Equity can be measured by taking a look at how much of the value of the home is actually owned by yourself. As such, the more equity you have in your possession, the higher your chances of obtaining the second mortgage.

As it pertains to this requirement, most lenders want applicants to have at least eighty per cent of equity to successfully qualify. It’s a risky situation to not have equity built up prior, so ensure that it is before trying to obtain a second mortgage.

Requirement #4: Credit score

In addition to having your finances in order, having a good credit score is one of the critical second mortgage requirements. This is because it directly impacts the interest rate for the impending loan. Generally speaking, the higher your credit score is, the lower the interest rate will be.

Although some individuals with a bad credit score can potentially qualify for a second mortgage, the subsequent interest rate can be stifling. That is why it is critical to make sure that you have a decent credit score to present to the lender. Paying your bills on time is a great way to do this!

Requirement #5. Property

As stated prior, lenders are very wary when it comes to approving a second mortgage. Having your finances in good shape, in addition to having a good credit score, can definitely assist in qualification. However, lenders still require collateral in some fashion. If the applicant is unable to keep up with the subsequent payments, lenders will need to secure their investment.

To prevent this from happening, always make sure that you have a dependable source of income available. Your credit score is also just as vital, so take care in avoiding areas that can negatively affect it. Securing a second mortgage can be an easy process, but can quickly turn into a disaster if you are unable to keep up with payments!

Requirement #6: Complying with terms & conditions

Fulfilling the above second mortgage qualifications is important, but avoiding foreclosure may be the most vital task. The applicable terms and conditions explain the situation in which you have to keep up with both the primary and second mortgage payments. Failure to do so will result in your property becoming foreclosed.

This is where the aforementioned interest rates will affect the payments to be made. Depending on where you live, the interest rate on the second mortgage will be higher than the primary one. However, just be sure to have a steady source of income, and you will avoid this drastic situation stress-free!