Having a second mortgage is a perfect option for remortgaging or getting an unsecured loan. But it is difficult to find a lender that is very much willing to offer a second mortgage if you have bad credit. When someone has bad credit, it means that the person has a credit record with negative items such as errors, mistakes, missed or late payments, and high debts. So, the negative items will lead to lowering down your credit score.
If your score is below the average of 600, then you become a risk to lenders. They will hardly approve of your mortgage application. But, don’t lose hope! There are ways you can do to get a second mortgage even with bad credit. Before tackling down those ways to get the approval of the second mortgage despite having poor credit, you must know first what the second mortgage is and why people apply for it?
What is a Second Mortgage?
A second mortgage is a loan that uses your house as collateral. It is called a second mortgage because it follows the first mortgage used to purchase a home. If you fund your house with a mortgage loan, your equity starts with a down payment. With each payment you make, you obtain more equity before the final payment becomes a hundred percent (100%) equity. And since your home serves as collateral, you will lose it once you stop making payments.
Second mortgage lenders give interest to the borrower in cash, which is repaid by the borrower on a monthly payment basis. Furthermore, second mortgages can be purchased from a bank or private lenders. In Toronto, most people seek assistance from mortgage brokers. The second mortgage is also popular for debt consolidation steps. Mortgage Brokers Toronto secures poor credit mortgages for clients and finds debt solutions for customers with a low credit score. The second mortgage is acquired by homeowners to pay for their home improvements, pay debts, and other expenses.
Types of Second Mortgages
A second mortgage has two main types. These are:
Home Equity Loan
When you take out a home equity loan, you are borrowing a lump sum of money that you must repay via fixed monthly installments over the repayment period such as 5, 10 or 20 years. This type of the second mortgage is often used for a single big-ticket expense (a roof replacement or a major renovation) for which the cost is known and fixed, and can be fully covered by the loan amount. Home equity loans are also a good alternative if you want to combine your debts because they will help you transform your existing debt into one manageable monthly payment at a lower interest rate.
Home Equity Line of Credit (HELOC)
This type of second mortgage functions like a credit card in which you only borrow what you need, when you need it. It has a spending limit that is called a maximum line amount. You can continue to access it as long as your credit line is open and you didn’t go beyond your credit limit. You have to make a minimum payment every month, but otherwise, you can pay as much as you like.
How to Get a Second Mortgage with Bad Credit?
When you apply for a second mortgage with bad credit, it would make you a high-risk borrower, and it will increase the cost of securing a loan. The lower your credit score is, the higher your interest rates will be. And you will probably encounter stricter loan terms.
If you want to get a second mortgage, then it is the time to boost your credit standing now. There are certain ways you can do to increase your chances of approval. Here are a few:
Check your Credit Report
Your credit score is based on the credit report information. If you see any mistake or old item for about seven years or so, then don’t hesitate to contact any of the three credit bureaus to remove the errors on your report- Equifax, Experian, or TransUnion. When you notice an error in your credit history, make sure to resolve the issue before dealing with the lender. Any small improvements to your credit could give you a much better rate.
Management Credit Card Wisely
If you have accrued a large amount of debt from credit cards, try paying off the debt that you owe less than 30% of your credit card debt limit. If you can, pay off your credit cards in full.
Also, resist the urge to resort to fast credit fixes by transferring the debt to a low-interest credit card. Once you do this, it would adversely affect your ability to buy a second mortgage with bad credit. Take note that the multiple credit applications would lower your credit score.
Find a Co-Signer
If you can’t afford the terms for the second mortgage with bad credit, consider finding a co-signer. The co-signer can either be a family member or close friend that can sign the loan application with you. Getting a co-signer is not a small favor since he or she is responsible to pay the entire debt once the applicant fails to pay the debt.
Make a larger down payment
Bad credit and substantial savings are possible to have. Lenders are often willing to accept a poor-credit borrower in return for a substantial down payment.
Don’t open a new credit card account or make a big purchase
A new credit account or a large purchase can push down the credit score. When applying for a second mortgage, avoid taking on or getting new debt until your home loan has been funded.
So, the above information shows the different steps anyone can do to get a second mortgage. If you are skeptical about your mortgage status and want someone to back you up, then do not hesitate to contact Credit Repair Now.
Our team of experts has a variety of knowledge in terms of fixing credit. The professional team can help you with your credit related concerns especially for those mortgage with poor credit score Ontario. Just set an appointment with us by contacting our email address: [email protected] or call us at +1 647-373-9651.