Second mortgage or Home Equity Line of Credit (HELOC)? It’s one of the main questions homeowners have when they’re considering their financing options. Both allow you to use your home’s equity to get a loan. The process and purpose of each are different.
If you’ve been researching these options, you’ve probably noticed that the main difference is that a HELOC is given by a bank. But what if you can’t get approved due to bad credit? I’ll go through how both work so you can better understand which one works for your situation.
How Each Works
A second mortgage is pretty simple: homeowners receive their entire loan amount at once and must repay it through scheduled monthly payments. Their home serves as the collateral.
Same for a HELOC. A home is the security.
But a HELOC operates more like a credit card. Your lender establishes a borrowing limit for your home equity before you can access funds from this pool. The credit line lets you access funding whenever you need it. You could use it to consolidate your high-interest credit card debt. You could use it to fund your roof repair after the draw period, all kinds of things.
What to Know About a HELOC
The draw period of a HELOC allows borrowers to borrow and repay funds as their financial needs change.
The repayment period starts when the draw period ends.
The real downside is the shock of having to repay a HELOC. The repayment period can really increase your monthly expenses. Traditional banks will often deny your application for a HELOC when you have credit problems.
HELOCs are available exclusively through mainstream banks, which typically require borrowers to maintain credit scores above 680.
RELATED: Bad Credit Mortgage Options
The institutions require borrowers to meet financial requirements that align with their individual financial situations. The bank will deny your HELOC application when your credit report shows negative marks or your income does not meet their strict requirements.
What Sets Second Mortgages Apart
Our focus on home equity value instead of credit history makes us a great choice for a loan. A HELOC may not be in the cards for you if you have bad credit.
Our evaluation process focuses on your home equity value instead of your credit history. We review your entire financial situation before making loan decisions because, like I’ve been saying in my other posts, your credit score is just one piece of the puzzle.
The ultimate goal is that a second mortgage can help you in the near future get to a place where you can improve your credit.
That’s why a second mortgage provides borrowers with their entire loan amount at once. It’s the best option when you need to pay for a single large expense, such as debt consolidation or a home renovation. The loan amount, payment schedule, and repayment duration are straightforward (no draw and repayment periods to worry about).
The payment amount remains the same each month. This feature helps you better manage your financial situation.
The loan terms for second mortgages from private lenders like us typically range from 1 to 3 years. The hope is that you can improve your credit situation in that time. If you do it right, you can get a lower-interest-rate loan from a bank.
When Is A Second Mortgage Better Than a HELOC (And Vice Versa)?
A second mortgage is a better option when you need to combine multiple debts into a single loan. If you have a one-time expense you need to take care of, but can’t get the bank to help, we’re a good option. Here are some of the reasons why people seek our help:
- Debt Consolidation
- Home Renovations
- Foreclosure
- Business Loans
- Vacation Loans
- Mortgage Refinancing
A HELOC, if you can get approved for one, provides better flexibility than a second mortgage because it allows borrowers to access funds as needed for ongoing expenses.
Borrowers with excellent credit scores can obtain HELOCs from major banks at interest rates that tend to be more favorable than those for private second mortgage options. The real problem with a HELOC is that it doesn’t favor those with less-than-ideal credit.
A second mortgage is the best option for those who have been denied by the banks.
Analyzing Your Financial Situation
You need to zoom out and look at your entire financial picture before making a decision. One of the best things about working with our team is that we help you do that. We’re not here to sugarcoat anything. We tell you the truth in the hopes that you can achieve your financial goals.
The fixed interest rate of second mortgages provides stability. As I’m always saying, though, your home is used as security. It’s not a great option if you’re not sure you can make the payments on your first and second mortgages.
What Happens Now?
So, you’ve decided to go for a second mortgage. You’ll want to start by signing the form to the right of this post. It’s a pre-approval with no obligations.
In the process, you’ll need to provide details about your income level, debt obligations, first mortgage details, and your home’s current market value.
The appraisal process will begin after we receive your application.
From there, we’ll evaluate your credit history, but we will not deny your application based on your credit score alone.Our team will conduct a complete assessment of your present circumstances. You need to show us your financial situation, the exact loan amount you require, and your ability to make monthly debt payments.
Your approved loan terms will become available to you after your application gets approved.
The loan terms include your interest rate, payment amount, repayment duration, and all applicable fees. We’ll walk you through it all, making it simple and easy to follow.
Also, there are no hidden fees when you work with us. If all of this sounds good, please start with your pre-approval. We’ll reach out to schedule a time to discuss all your options.
