Things You Need to Know about a 2nd Home Mortgage

When people think of a 2nd home mortgage they usually think of a Home Equity Line of

Credit (HELOC), but there are many types of 2nd home mortgage products that are

offered by lenders.

When purchasing a home, borrowers with good credit, steady, long-term employment and

provable income can usually qualify for a first mortgage such as a 30 year fixed rate

mortgage loan from a reputable bank or lender. Most lenders, however, will not lend

more than 80% of the purchase price and unless the borrower has sufficient funds for

a down payment, this can cause a problem and eventually not allow the borrower to

purchase the home or property they desire.

Banks and lending institutions offer fixed rate 2nd home mortgage products to

borrowers with excellent credit ratings to help them to bridge the gap between first

mortgage amount and the purchase price. This is sometimes referred to as “gap”

lending. Most banks, however, do not allow the total loan-to-value ratio (LTV) to be

more than 90% or 95%, which means that the borrower will have to come up with at

least 5% to 10% of their own money to complete the transaction. This is usually known

as the down payment. Banks are extremely tight at the present moment with money

lending and regulations are strictly enforced. Lending institutions are requiring

borrowers to prove the source of their down payment money and they usually require

“seasoning” which means that the money has to have been sitting in the borrower’s

account for a certain number of months, sometimes up to a year or more, depending on

the lender.

Many times when the bank does not wish to give the borrower a 2nd home mortgage, a

motivated seller will provide his own 2nd home mortgage. This is known in the

industry as a “seller carry-back” and is a 2nd home mortgage loan that the seller

makes directly to the borrower. The seller will register a legal lien based on the

signed 2nd home mortgage documents and the borrower will make monthly payments

directly to the seller. If the borrower defaults on their payments, the seller will

have certain legal rights to foreclose, just like a lending institution of bank.

The most common type of 2nd home mortgage is, of course, the Home Equity Line of

Credit. This HELOC product is offered by most banks and is usually offered to

homeowners with excellent credit histories and sufficient equity in their properties.

LTV ratios are usually low, less than 70% allowed, but rates can be very attractive.

Most of these 2nd home mortgage HELOCS are for 10 year terms, with interest only

payments and a balloon payment due at the end of the 10 years. Borrowers make

payments only on the portion of the HELOC actually used. In the past banks would

provide HELOC customers with a checkbook, but these days it is usually a debit card.

Homeowners can then use this money to make repairs, remodel, or pay off credit cards.

The preceding has been a summary of available 2nd home mortgage products. Please

check with your bank or lending institution for more options.