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When to Get a Second Mortgage

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Finding the perfect house is only the beginning of your task list. Not only is it important to find a reliable mortgage representative, it’s also critical to decide if you should get a second mortgage at the time of purchase. Understanding how this process works may help you decide if a second mortgage is the right option for you.

What it is

When you get a second mortgage, you’re really seeking a kind of down payment assistance from your lender. Lenders like you to put down a substantial down payment, usually 20 percent, to show you have a hefty financial stake in repaying the loan. When you cannot do this, they often require you obtain an insurance policy that guarantees repayment of the loan. If you’d prefer not make the monthly premium payments, you can use a second mortgage to cover your down payment. Because your first mortgage balance does not exceed 80 percent of the purchase price, you avoid private mortgage insurance (PMI) requirements.

When it’s right

If your available funds for a down payment fall short of 20 percent, you may want to get a second mortgage. It’s important to consider your total financial picture before you decide because it may be in your best interest to delay your purchase instead. For example, you can get 100 percent financing between the first and second mortgages, but this places you in a precarious position. Although it isn’t always the case, this may signal you are not financially ready for a mortgage.

On the other hand, getting a second mortgage is a viable option when you have 5 or 10 percent saved for your down payment. Not only will you avoid PMI payments, you can build equity in your property faster by utilizing a second mortgage.

How to find it

The best time to get a second mortgage is during your first consultation with your mortgage representative. Explain your financial position and describe your ideal financing. If he or she is unable to provide supplementary financing, look for a representative or broker with more lending options.

While you may think that there’s more hassle involved when you get a second mortgage, this is not always the case. Yes, you will have two sets of loan documents to sign, but the process remains simple. In most instances, your first mortgage lender will take care of the communication with the second mortgage lender and share documentation you provide to save you a step. Other times, your first mortgage lender can process both loans at the same time.

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