14 Tips on How to Get a 2nd Mortgage With Bad Credit


So what if you’ve got bad credit! You can still get a second mortgage, the bad credit issue notwithstanding. In layman’s terms, a second mortgage involves putting down your home’s equity as collateral. Under this arrangement, you get to borrow as much as 80% of the current value of your home. The only downside is that second mortgage loans attract higher rates than a first mortgage.

Besides, to qualify for a home equity loan, you need a credit score of at least 680 points. Bad credit means you don’t have this score. So, why seek a second mortgage? Perhaps to pay for renovations or repairs, or to settle a debt.

Below are fourteen tips on how to get a 2nd mortgage with bad credit:

1. Don’t Give Up on First Denial

With a credit score of less than 680 points, most traditional lenders are not going to even consider an application for a second mortgage. However, “most” is not “all.” There are lenders out there willing to take a chance on you. You will receive enough no’s to want to give up, but don’t. Soon, you will come across a lender willing to say yes to you.

2. Use a Mortgage Broker

Using a mortgage broker is a great way to get a 2nd mortgage with bad credit. Mortgage brokers know which lenders are more likely to consider your application for a second mortgage. They are in business for precisely this reason. Explain to them your circumstances and they will soon match you with a potential lender. Remember that it’s the lender who pays mortgage brokerage fees, not you! So, what do you have to lose?

3. Improve Your Credit Score First

Unfortunately, a bad credit score situation is hard to ignore. You can be sure that mortgage providers won’t ignore the fact that your financial history is less than impressive. If you can, don’t rush to take a second mortgage. Work on your credit rating for a couple of months before approaching a lender with a second mortgage request.

4. Pay Credit Cards with Huge Balances

If there’s one thing that hurts your credit score, it is delayed credit card payments. Always settle your payments on time and in full. Erratic or missed credit card payments are an indication that you are struggling financially. You can bet credit rating bureaus will not miss this fact.

5. Dispute Credit Report Errors

The credit rating bureaus are not always accurate when reporting your credit health. They sometimes make errors. Should you notice a mistake on your credit report, dispute it immediately and seek to have it rectified. Chances are your credit score will improve significantly enough to get a second mortgage loan provider to look at your application.

6. Put a Down Payment

If you have “more skin in the game,” lenders will give your application for a second loan another chance. At least put down a deposit of not less than 10%. The more you can put down the better. The message you are sending to lenders is that you are keen to minimize their risk on you.

7. Consolidate Your Debt

As much as is practical, sometimes it’s best to avoid a second mortgage on bad credit. However, the fact that you are even considering it means you are running out of options. There are, however, instances when taking a second mortgage is a great idea. For instance, if the second mortgage attracts lower interest rates than the first (an extremely rare occurrence), you may want to consolidate under the lower rate.

8. Look beyond the Monthly Payments

While the monthly payments on second mortgages may be tempting, you should delve deeper into the rest of the terms. For instance, you want to know about the repayment pace and the loan amount. Ensure the terms of a second mortgage are in your favour before signing along the dotted line.

9. Compare Different Lenders

No doubt, some lenders offer better 2nd mortgage terms than others. However, you won’t know unless you compare at least three lenders to arrive at the most competitive. You might be tempted to go with the first lender to say yes to you. Don’t! Do your research and analyze different lenders to establish who among them is best suited for you.

10. Get a Co-signer

A cosigner loans his or her good credit. If you have a family member or a friend with good or great credit, request them to be your co-signer on a second mortgage. If you get someone to agree, they will be held accountable and liable for the entire loan amount should you default on payment. Make sure you are not late on payments as this could hurt your co-signer’s credit score.

11. Approach Non-traditional Lenders

While most traditional lenders won’t touch a person with bad credit, others won’t mind bringing you on board. Community banks, online banks, mortgage brokers and credit unions are equally great options. While they may charge higher interest rates, they are not opposed to processing second mortgage applications from people with bad credit.

12. Explain Payment Delays

Your ability to convincingly explain overdue loan payments will boost your chances of securing a second mortgage. A lender will be looking to know what caused the delays and how long the delay was. They want to know at what stage you paid the loan and why the delay happened in the first place. If it was precipitated by a crisis, you are likely to be excused. However, you need to provide evidence to support your explanation.

13. Don’t Splurge

The last thing you want is to increase your credit card expenses. Resist the temptation to buy expensive products or services. Also, don’t even think of opening a new credit account. These habits could dent your already bad credit score further.

14. Don’t Take on New Debts

If you want to apply for a second mortgage, the last thing you want is to take on new debts. This will hurt your credit score and, consequently, your chances for a second mortgage on bad credit. You want your credit score to move from bad to good and not bad to worse. Always remember that a few points improvement on your credit score could raise your chances for a second mortgage. The converse is also true.

On the face of it, applying for a second mortgage on bad credit is not a great idea. However, if the facility is aimed at improving your home and hence raise its value, a second mortgage suddenly makes sense. While most traditional lenders shun borrowers with bad credit, there are a select few who are willing to take a chance on you.


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