By Marie-Claire Smith

Do you need cash in order to pay down some outstanding bills or to pay for an unexpected expense, such as a trip or a medical emergency?

If you are a homeowner, you may be in luck. For homeowners, there are two ways you can leverage the equity you have in your home in order to get the cash you need. The first way is to take out a second mortgage loan. The second way is to refinance your home.

What if you have a bad credit score? No worries: since you will be using the equity in your home as a form of loan collateral, you can still qualify for reasonable second mortgage loan interest rates – even with a low credit score.

If you are trying to decide between bad credit second mortgage loans and home refinancing, here are 5 FAQs that can help:

1. What is the difference between second mortgage loans and home refinancing?

A: A second mortgage loan – also known as a home equity loan – involves leaving your existing first mortgage alone. Instead, you are just taking out an additional mortgage, usually at a higher interest rate than you have with your first mortgage.

On the other hand, with a home refinancing loan, you are paying off any existing first and/or second mortgages with a new mortgage loan. And if you need extra cash in the process, you just take out a larger loan than what you currently owe on your home now. You end up with a larger loan principal and possibly slightly higher monthly payments, but you will have the cash you need.

2. Which type of loan is easier to qualify for if I have a bad credit score?

A: Both types of loans are easy to qualify for if you have a bad credit score. In both cases, the lender will look at several factors, including your credit score, the total amount of your outstanding (first and/or second) mortgage principal, and the current market value of your home.

3. Which option will allow me to get more cash in hand?

A: Both loans turn out about the same in this regard. Whether looking for a second mortgage or a home refinance, keep in mind that each lender will offer a certain loan-to-value (LTV) type loan. For example, an 80% LTV loan means that you will be able to borrow up to 80% of the total equity in your home. The higher the LTV, the more you can borrow.

4. Which option is lower cost to me in the long run?

A: Refinancing your existing home loan may be less costly, since it gives you the opportunity to possibly qualify for a lower interest rate than you have on your existing first mortgage. The result could be an overall lower cost of loan, which would save you more money in the long run.

5. Which option is faster?

A: Taking out a second mortgage (a home equity loan) is probably the fastest route for you to take because doing so does not involve your having to shop for a completely new first mortgage. In most cases, qualifying for a second mortgage loan takes less than an afternoon.

Bonus tip: if you have a bad credit score, be sure to shop for “bad credit second mortgage lenders” or “bad credit home equity loan lenders.” These are the ones that are most likely to approve your loan, despite your low credit score.

About the Author: Find more tips on how to qualify for a bad credit second mortgage loan at:

Bad Credit Second Mortgage Approval

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Source:

isnare.com

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