How Bad Credit Affects You
It’s important to remember that second mortgages come with higher interest rate that your first. After all, you’re increasing your debt load, which also increase your risk level. Aside from this, your first mortgage is more important that your second mortgage. What this means is if you default, you have to pay the lender from your first mortgage first.
As previously stated, a bad credit second mortgage makes you more riskier in the eyes of lenders, so the cost of borrowing will be higher due to the higher risk. If you’re credit score is as bad as it can get, you’ll also experience higher than normal interest rates and strict borrowing terms.
What Brampton Lenders Are Looking For with Bad Credit Second Mortgages?
Have you experienced difficulties in paying your first mortgage? Don’t fear, a second mortgage can help you to turn things around and do it right the second time. Even with bad credit, it’s possible to get a second mortgage. It may be a little bit tricky, but it’s not impossible. You should know what lenders will be looking for, so that you are prepared when the time comes:
Your Income-to-Debt Ratio
When lenders are collecting and reviewing your information to determine whether they will lend to you for your second mortgage, one of the things they look really closely at is your income-to-debt ratio. Simply, this means that look at your total amount of debt and your total amount of income, and then compare the two. If you make more money than you pay out in debt, your chances of getting the loan will be greater.
Home Equity
Your home equity on your first mortgage can also help you out with a bad credit second mortgage. You can utilize up to 95% (with one of our lender) of your home equity (normally 80%) to get your second mortgage loan. Keep in mind that this will be less the outstanding amount owed on your first mortgage.
Work History
Since lenders want to be assured that you will have the ability to pay back the second mortgage, therefore they will also examine your work history. As long as you have an income that you and they can depend on, this will increase and/or improve your chances of getting the second loan.
How To Get A Second Mortgage With Bad Credit?
Reduce Your Credit Card Debt
- If you have a lot of credit card debt you want to try and get this debt under 30 percent of your limit, even though paying them off in full looks even better.
- Avoid completing any credit applications or doing debt consolidation prior to applying for a second mortgage, either one of these will have a negative effect on your credit score, and make it harder or near impossible for you to get approved.
Explore Possible Lenders
The best news here is, that it’s not impossible to get a second mortgage loan with bad credit. Consider hiring a mortgage broker, they can find you a lender. A mortgage broker is the best option since they have access to so many different lenders. They can learn about your circumstances, provide advice and find you the best second mortgage rates.
Ask For Help
After you explore your options with a mortgage broker to find out all of your possible options and get a pre-approval completed, if you find it’s too expensive you can alway consider asking for help. Having a cosigner, such as a close friend or relative, with good credit can help to get you approved for less. In this case it will be their credit score that lenders will consider, and not yours.
Even though your cosigner’s credit score is the main consideration in the approval, you will be the one making the payments on the second mortgage. Therefore, you will still be able to improve your credit and make use of the home equity too. Remember, only borrow what you can budget and don’t stretch it beyond that, anything can happen.
Ready to get started with your second mortgage? Apply online now at AKAL Mortgages.
When we say Yes, we stand behind our promise!