Second Mortgage Companies

Second mortgage companies are slightly different in makeup than banks and credit unions that offer these lending agreement instruments. A second mortgage lending agreement is a either a home equity loan based on the amount of equity that is in a place of residence or a lending agreement to cover the down payment requirement in order to get a better loan offer. In either case, either second mortgage companies or banks and credit unions are the sources, depending on one's own financial situation and need. Each lending entity has its own personality, its own set of lending guidelines and varying standards of risk threshold. Knowing how each works is important in getting all the information someone needs in securing a 2nd lending loan on a property. "Bless them that curse you and pray for them that despitefully use you." (Luke 6:28)

To begin, the biggest difference between banks, credit unions and second mortgage companies is in risk management or a lessened degree of the same. Banks are governed by the policy of guarding and taking care of depositors' monies. Thus a high degree of conservative practices are usually a part of their standard operating procedure. In general, because only the lowest risk borrowers are approved by banks and credit unions, these lending institutions generally offer the lowest rates on interest for lending agreements. But they do have the highest standards for borrowers that include a credit score above average and a low debt to income ratio. Since the average credit score recently in America is about 620, banks and credit unions like to look at those persons with a borrowing history rated at 640 or above, although this is not a hard and fast rule. Secondly, the ratio between all monthly debt or credit payments, including the house payment and a person's or couple's monthly income cannot be above forty percent, and preferably lower.

Just because a borrower is turned down by a bank or credit union does not mean that there cannot be a lending agreement in his/her future. The opposite of banks guarding their depositors' monies are second mortgage companies who do not have depositors to guard, but do have high risk investors who aggressively go after poorer risk borrowers with lower credit scores and higher debt to income ratios. It would follow that their lending agreements would have higher interest rates and perhaps more points on lending agreements. So mortgage companies and loan companies that are often found in strip malls and have nationally known names behind them are these types of lending companies. So who needs a 2nd mortgage?

Consider a young couple just starting out life together and who want to buy a modest house. The couple's parents gave them a total of ten thousand dollars at their wedding for a down payments, but the loan they can most afford, a fixed rate at six and a quarter percent requires twenty percent down. The hundred thousand dollar house will mean that they must come up with ten thousand more dollars somewhere to make the loan happen. The bank where they will get the first house loan will not give them a second loan, so the couple ended up at one of the many second mortgage companies to get a secured personal loan for ten thousand dollars. Both husband and wife have newer cars that are paid off, so this will be the collateral for the second mortgage lending agreement. What the husband and wife do not know is that this borrowing agreement has jumped their debt to income ratio above forty percent because of some credit cards each one has and the bank agreement will now probably tank. Easy credit is not necessarily a good thing for everybody.

Then there is the couple who need a second mortgage for home repairs. The foundation on the duo's house is beginning to crumble and will cost over twenty thousand dollars to fix. The couple knows they don't have great credit scores because of some missed or late payments over thirty years of marriage. The forty thousand dollar house that was purchased thirty years ago is now worth almost two hundred thousand dollars and they only owe four thousand more on the mortgage. The bank is still being a bit squeamish about giving them money because of their credit scores, so a second mortgage, sometimes known as a home equity loan, will be sought by one of the nationally known second mortgage companies that actually even offer first mortgages also.

The couple finds out that second mortgage companies are happy to take the twosome's loan application because there seems to be little risk since almost the whole house is already paid off. The husband and wife apply for a twenty five thousand dollar home equity line of credit, and roll the cost of the loan into the money received. The couple will pay four points for the loan which will cover all of the costs and a variable interest rate of about eleven percent, quite a bit higher than the bank. The older couple will have about four thousand dollars left over from the foundational home repair and will go take a cruise to Alaska to celebrate the foundation being repaired. Second mortgage companies do charge more for loan services, but in some cases provide a great alternative to crumbling foundations. An alternative to society's philosophy comes from Jesus when he said the happiest people are those who mourn over sin, the happiest people are those who are meek, the happiest people are those who are persecuted for faith in Christ, the happiest people are those who are truly hungry to experience righteousness in life.

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