What Is a Second Mortgage?
A second mortgage is when you take out a second loan against your property. You must have a first mortgage loan on your property to get a second mortgage. When you take out a second loan, there is a lien taken out against the portion of your home that has already been paid off. However, second loans allow you to access more funds based on your home’s built-up equity.
Why Take Out a Second Mortgage?
Taking out a stand-alone second mortgage loan gives you access to more cash by using the property as collateral. With your first mortgage, you had to use the loan to pay for the home. However, your second mortgage allows you to use the loan for any purchases.
Homeowners can use second mortgages to finance large purchases such as a new vehicle or even a second home. In addition, many people use them to consolidate debt, pay for their child’s college education, or renovate their homes.
What Is a Second Mortgage Bank Statement Loan?
Bank statement second mortgages are a type of second mortgage where borrowers qualify through bank statements rather than going through the traditional loan approval process, which requires proof of income and job history via pay stubs or W2s.
Bank statement loans are similar to stated income loans and fixed-rate mortgages. However, they’re ideal for borrowers who can’t provide proof of income with tax returns, W2s, or pay stubs, such as self-employed individuals, freelancers, and retirees who take deductions on their taxes, ultimately reducing their net income. These individuals have a lower net income but still have the ability to repay, which isn’t taken into account with traditional mortgages.
Bank statement mortgage loans are Non-QM mortgages with expanded criteria that allow borrowers to prove their ability to repay using bank statements rather than income verification.
If you don’t qualify for a second mortgage bank statement loan, other options are available, depending on your financial situation. For example, Griffin Funding offers DSCR loans for real estate investors.
Benefits of Second Mortgage Bank Statement Loan
There are several benefits to bank statement home loans, including:
- No need for tax returns: Bank statement mortgage lenders don’t require borrowers to provide proof of income in the form of tax returns or pay stubs because they’ll be able to evaluate a borrower’s ability to repay based on bank statements that prove they earn enough to cover the monthly payments.
- Loan amount: Second mortgage bank statement home loans allow you to borrow more money, and you’re not limited in where you can spend it. These loans are secured by your home, allowing you to access more than you could with other types of loans and credit cards. How much you can borrow depends on your lender, but you may be able to borrow up to 85% or more of your home’s value. Loan amounts up to $350,000 (Exceptions granted up to $500,000).
- Interest rates: Bank statement second mortgages typically have lower interest rates than personal loans, business loans, merchant cash advance loans, credit cards, and other types of debt you may need for whatever you plan to purchase. Because securing your loan with the home increases the loan value, it ultimately reduces the risk for the lender, allowing them to offer lower interest rates.
- 12- or 24-month bank statements: Lenders can look at 12- or 24-months of bank statements to determine your eligibility and ability to repay. For example, if you started a business in the last two years, you can choose to share two years’ worth of monthly bank statements or just one year, depending on your income.
- Tax benefits: Some borrowers may be able to take mortgage interest deductions for interest paid on a bank statement second mortgage loan.
- Keep the rate on your first mortgage: HELOAN is a 2nd mortgage that can be used to access the equity in your home without having to touch your first mortgage.
- Property: Bank Statement Home Equity Loans (HELOANs) are offered on primary residences, second homes, and investment properties.
- Low Fixed Payment: Stretch out the fixed term of your Home Equity Loan to as long as 40 years to lower payment and maximize cashflow.
- Lump Sum of Cash: Receive a lump sum of cash at closing
Downsides of a Second Mortgage Bank Statement Loan
Second mortgage bank statement loans can offer you access to cash when you need it most, but there are some downsides, including:
- Loan costs and fees: Second mortgages can be expensive, whether they’re traditional or Non-QM second mortgages. Like with a first mortgage, borrowers will have to pay costs for credit checks, appraisals, and other various fees.
- Interest: While interest rates on bank statement second mortgages are often lower than other types of credit, borrowers will still have to pay interest, which can be higher on your second mortgage than on your first.
- Foreclosure risk: When you take out a second home loan, you risk foreclosure because your property is collateral. If you fail to pay your loan, the lender can take your home through foreclosure, which can have serious financial repercussions.
Does Taking Out a Second Mortgage Impact Credit Score?
Taking out a second mortgage typically affects your credit score, in the same way, taking out your first mortgage or any other type of debt will. In general, finalizing a mortgage, refinancing, or getting a second mortgage can initially cause your credit score to drop. However, it should go back up if you practice good financial management and make payments on time.
When you apply for a second mortgage, the lender will make a hard credit inquiry, making your score drop a few points. Then, once your mortgage is finalized, your credit score may drop again because you haven’t made any payments yet, and your account age decreases when any new debt is added. However, as you pay down your mortgage, you can start building your credit back up, even improving upon your initial credit score.
Reach Out to Learn More About Second Mortgage Bank Statement Loans
Bank statement second mortgage loans may be a great opportunity for you to use the equity you’ve built in your home to fund expensive purchases or consolidate debt. Ready to learn more and see if you qualify? Contact Griffin Funding at (855) 394-8288 to speak with one of our mortgage officers or begin the second mortgage application process with our online application form.