Second Mortgages

Conventional Guidelines:

• Loan Types: Typically home equity loans or home equity lines of credit (HELOCs).

• LTV (Loan-to-Value) Limits: Generally, lenders allow a combined loan-to-value (CLTV) of up to 85-90% of the home's value, depending on the borrower's credit profile.

• Credit Score Requirements: Usually require a FICO score of 680 or higher, with better terms for scores above 740.

• Debt-to-Income (DTI) Ratio: Conventional second mortgages require a maximum DTI of 43-50%, depending on the lender.

• Loan Terms: Fixed-rate home equity loans typically range from 10 to 30 years, while HELOCs often have a draw period (5-10 years) followed by a repayment term (10-20 years).

• Income Documentation: Full income verification is required, meaning borrowers must provide W-2s, tax returns, and pay stubs.

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Pros:

• Lower Interest Rates than personal loans or credit cards.

• Preserves First Mortgage Rate – no need to refinance if the current first mortgage has a favorable interest rate.

• Flexible Loan Options – borrowers can choose a lump sum (home equity loan) or a revolving credit line (HELOC).

• Predictable Payments with fixed-rate home equity loans.

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Cons:

• Strict Underwriting Guidelines – requires strong credit and financials.

• Higher Rates than First Mortgages – second mortgages are riskier for lenders, so they come with slightly higher interest rates.

• Potential Payment Shock – HELOCs often have adjustable rates, meaning payments can increase over time.

• Foreclosure Risk – defaulting on a second mortgage can lead to foreclosure, even if the first mortgage is current.

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Non-QM Stand-Alone Second Mortgages Guidelines:

• Loan Types: Non-QM lenders offer fixed-rate second mortgages

• LTV Limits: Some lenders allow higher CLTVs, up to 90%, depending on the borrower's financial profile.

• Credit Score Requirements: More flexible than conventional loans, with some lenders accepting FICO scores as low as 660

• Debt-to-Income (DTI) Ratio: Max 50%

• Income Documentation: Non-QM lenders accept alternative income documentation, such as:

  • Bank statement programs for self-employed borrowers.

  • P&L programs with or without bank statements

  • Asset depletion loans (using liquid assets as income).

  • DSCR loans (for investors qualifying based on rental income). Has a pre-payment penalty.

• Loan Terms: Typically 10-30-years, with some lenders offering interest-only options for lower initial payments.

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Pros:

• Easier Qualification – great for self-employed borrowers, real estate investors, and those with unique income situations.

• Higher LTV Options – allows homeowners to access more of their home equity.

• Flexible Income Documentation – ideal for those who don't fit into conventional lending guidelines.

• Interest-Only Payment Options – lower initial payments on some HELOCs.

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Cons:

• Higher Interest Rates – non-QM loans generally have higher rates than conventional second mortgages.

• Limited Lender Availability – not all lenders offer non-QM second mortgages.

• Potential Balloon Payments – some non-QM second mortgages may require a large payment at the end of the term.

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DSCR Equity Advantage

• Loan amounts up to $500,000 / Minimum Loan amount $75,000

• Investment properties only: SFR, Townhomes, 2-4 units (with a 5% CLTV reduction). Condos not eligible

• Min DSCR ratio 1.00x

• Minimum Fico - 680

• 80% LTV

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Choosing the Right Option

Are you thinking about a stand second mortgage to access your home equity without affecting your first mortgage? If you have strong credit and verifiable income, a conventional second mortgage may be the best fit for you. If you're self-employed or a real estate investor, non-QM options could cater to your unique financial situation.  Let’s discuss your options today!​