Fixed Rate Home Equity Loan | Apply for a Second Mortgage Today (2024)

FAQs

Is a home equity loan a 2nd mortgage? ›

Common examples of second mortgages include a home equity loan and a home equity line of credit (HELOC). These two tools are the main ways homeowners typically access their equity stake.

Fixed-rate home equity loans are also known as second mortgages, and are much like first mortgages since the loan is secured by your home.

If you have bad credit, a FICO score of 580 or less, you'll find it challenging to get approved for a second mortgage. While secured loans have more lenient eligibility requirements than unsecured options, lenders tend to require credit scores of 620 or better.

Higher Interest Rates

Second mortgages usually have higher interest rates than first mortgages. This is because lenders see them as riskier. The higher the risk, the higher the rate. These increased rates mean higher monthly payments for borrowers.

Higher credit score: Lenders often require a credit score of 680 to 700 or higher for a HELOC on a second home. Debt-to-income ratio (DTI) below 43%: Your DTI compares your monthly debt payments to your monthly income. Cash reserves: Lenders may require several months' worth of HELOC payments in reserve.

Frequently, it is tougher to get a second mortgage than a primary mortgage. While HELOC rejection rates are the lowest in four years, about half of applications are still denied, for example.

Qualifying for a Second Mortgage

They will look at your income, creditworthiness and overall debts. Typically, lenders look for a minimum credit score at or above 620 – which is generally considered “fair” credit, according to credit scoring company FICO.

How much equity do I need for a second mortgage? ›

To qualify for a second mortgage, the requirements vary depending on the lender. However, many lenders prefer that you have 20% equity in your home. You can typically borrow up to 85% of your home's value, minus your current mortgage debts.

As with any other loan, the higher your credit score the greater your chances of approval. You'll also qualify for lower interest rates and a larger loan amount. Borrowers with fair to poor credit scores will find it difficult to qualify for a home equity loan, although it's not completely impossible.

While a HELOC works like a credit card — giving you a maximum amount you can borrow with a variable interest rate — a home equity loan works more like your mortgage. You get a lump sum of money, and you repay it on a set schedule with a fixed interest rate.

On a second home, however, you will likely need to put down at least 10%. Because a second mortgage generally adds more financial pressure for a homebuyer, lenders typically look for a slightly higher credit score on a second mortgage.

A fixed-rate equity loan is a lump sum amount that you draw from your equity. You'll pay it back at a fixed interest rate for the life of the loan with monthly payments, so you'll know exactly what to expect.

A home equity loan is a second mortgage, meaning it's an additional home loan that doesn't affect the terms of your original mortgage. You'll owe payments on both loans. When you refinance a mortgage, you replace the terms of the original loan with the terms of the new refinanced mortgage.

Home equity line of credit (HELOC).

Interest rates are typically of the variable-rate variety. Because HELOCs are secondary to any primary mortgage on the property (what's called a “second-lien” position), the interest rates are higher than they would be for a comparable first-lien mortgage.

Equity is your home's market value minus your mortgage balance. Although it's sometimes called a second mortgage, a home equity loan doesn't affect your mortgage. Your mortgage interest rate, term and payments stay the same—you'll just have another monthly payment.

A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages.