Second-lien loans have consistently been a reliable source of financing. This serves as an alternative to refinancing your primary mortgage. These loans may be preferred when you have locked in a lower mortgage rate than current mortgage rates.

Great news: home equity is at record levels, with some reports suggesting as much as $33 trillion. Many homeowners also took advantage of the historically low refinancing rates during COVID-19 (2020-21). However, the Federal Reserve implemented rising interest rates in 2022 due to high inflation. This made accessing equity, mainly through refinancing a low-interest mortgage, prohibitively expensive. A second lien loan then became the next alternative.

Most second-lien loans are based on a maximum loan amount of 80% loan-to-value. Some lenders will offer up to 90% LTV. LTV can be determined by estimating and comparing the current value to your mortgage balance.

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Establishes a Line of Credit. One of the advantages is that it creates a line of credit. Similar to a credit card, you only make monthly payments when you withdraw funds. This approach works well for construction or renovation projects. Since these projects take months, you do not need all the funds upfront. Your contractor will provide a payment schedule. This keeps your monthly payments much lower about the funds withdrawn.

HELOC – Variable

Establishes a maximum line of credit. Monthly payments are determined by the balance of funds withdrawn and the variable interest rate. The variable interest is based on the Prime interest rate. Prime rates may change over time.

HELOC – Fixed

This offers the benefits of HELOC with the security of a fixed rate. Many clients prefer a stable fixed interest rate to manage monthly expenses.

2nd Fixed Loans

The key advantage is that a fixed second will offer the lowest financing rate. This will result in your lowest monthly payment. Monthly payments will be due upon funding of the loan

Loan Qualification

There are several options for qualifying for a second lien loan, specific to income qualification. The standard is to provide income-related documents, including paystubs, W2s, and tax returns. However, as many homeowners are self-employed and operate a business, alternative income can be determined.

Bank Statement

Provide 12 or 24 months of bank statements. Monthly income will be determined and averaged to a monthly qualifying income.

Profit & Loss

Income will be determined based on your audited Profit and Loss reporting.

Debt Service Covered Ratio (DSCR)

Investment property only. Income is determined by monthly rental income.

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2nd Lien Loan Options

2nd Lien Loans

HELOCS