A hard money 2nd mortgage is provided by a private lender and is taken out as second loan, which means that borrowers need to have a first mortgage already in place. These loans are secured by the existing mortgage and are therefore riskier. This means that they may have higher interest rates and shorter loan terms. However, they can also provide access to funds quicker than traditional loans.
A hard money second mortgage can be an effective way for homeowners to access extra funds secured by the equity in their property. As real estate values have climbed over the past decade, many owners have seen their equity grow as well. While tapping into home equity used to mean high fees, arduous paperwork and long wait times, the emergence of alternative lenders has opened new possibilities for quickly and conveniently leveraging home values.
What is a Hard Money Second Mortgage?
A hard money loan refers to a short-term, asset-based loan typically made by a private lender rather than a bank or credit union. These loans are usually secured by real estate and have higher interest rates and shorter terms than conventional mortgages. Hard money loans can be used as first mortgages to purchase or refinance properties, but they are also commonly taken out as second mortgages by owners who want to extract cash from a property they already own.
A second mortgage sits in a subordinate position behind the primary mortgage. This means if the borrower defaults, the first mortgage gets paid before the second Lenders charge higher rates for second mortgages to compensate for the extra risk
Hard money second mortgages share some key features
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Collateral: The loan is secured by real estate, not by the borrower’s creditworthiness. This allows borrowers with lower credit scores access to financing.
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Faster funding Hard money lenders can fund loans in days rather than weeks or months Streamlined documentation and customized underwriting provide quick approvals
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Higher costs: Interest rates are usually 11-15%, higher than rates for conforming first mortgages. Origination fees of 2-5% are common.
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Shorter terms: Loans may have maturities of 6 months to 5 years. Many require balloon payments. Borrowers usually refinance into longer-term loans.
Benefits of Hard Money Second Mortgages
Second mortgages funded by hard money lenders provide several advantages traditional lenders can’t match:
Speed – Hard money lenders can close loans in as little as 5-10 days, while banks and credit unions often take 30 days or more. Borrowers who need funds quickly benefit from hard money lenders’ streamlined processes.
Flexibility – Hard money lenders look primarily at the value of the collateral rather than borrower credit scores and debt-to-income ratios. Their customized underwriting facilitates loans that don’t conform to agency standards.
Non-purpose lending – Hard money lenders normally do not require borrowers to state a purpose for the loan. The funds can be used for any legal purpose.
Lower monthly payments – Since hard money loans have shorter terms, monthly payments are usually lower than longer amortizations. This helps cash-strapped borrowers.
Credit repair – Paying off credit card, auto and installment debt with a hard money second mortgage can improve the borrower’s credit profile for future financing.
Increased buying power – The added funds from a second mortgage can provide the extra capital needed to qualify for a new primary mortgage at better terms.
Mortgage avoidance – Borrowers who don’t want to take on the long-term obligation of a first mortgage can use a shorter-term second to bridge a financial gap.
Common Uses for Hard Money Second Mortgages
Hard money second mortgages give homeowners flexibility in tapping their equity for a variety of needs:
- Paying off high-interest credit card balances
- Funding home improvements and renovations
- Consolidating other debts into one monthly payment
- Covering emergency expenses or medical bills
- Providing tuition funding for college
- Coming up with a down payment on a new home purchase
- Buying investment real estate
- Starting or expanding a business
- Avoiding foreclosure and mortgage default
Because hard money lenders focus on the value of the real estate rather than the borrower’s credit profile, these loans open equity access to a wider range of homeowners. Their streamlined underwriting and funding provide quick cash outs for time-sensitive financial needs.
While hard money loans cost more than conventional mortgages, their ability to quickly fund lump sums secured by real estate equity fills an important niche for borrowers. When used strategically and repaid on schedule, a hard money second mortgage can provide borrowers with financial flexibility and opportunity.
How to Qualify for a Hard Money Second Mortgage
Hard money lenders have flexible qualifying guidelines that expand borrower options beyond conventional financing. Here are some key parameters:
Property – Most any type of residential or commercial property can be used for collateral, including single-family homes, condos, multi-family properties and mixed-use real estate. Fixer-uppers or distressed properties are acceptable.
Equity – The loan amount is based on a percentage of equity, typically around 60-70% loan-to-value. More equity allows higher loan amounts.
Credit scores – Minimum scores range from around 500 up to the mid-600s. Many lenders allow lower scores for higher equity.
Employment/income – Proof of income is generally not required. Lenders may only verify borrower assets. Self-employed and retirees can qualify.
Debt-to-income – Back-end DTI up to 60% or more may be allowed. Hard money lenders can customize terms based on the specific deal.
Providing documentation for income, assets, property value and existing mortgages will help speed the underwriting process. But hard money lenders are willing to dig deeper into a deal rather than basing decisions solely on generic credit scores and ratios. This gives more owners the opportunity to leverage their equity for financing.
Finding the Best Hard Money Second Mortgage
While hard money loans have higher costs than conventional mortgages, it still pays to shop among lenders for the best rates and terms:
- Compare interest rates, origination fees, and other charges to find the lowest overall cost.
- Look for lenders that don’t penalize early repayment so you can refinance when ready.
- Ask about the possibility of extension options if you may need more time for repayment.
- Read reviews from past borrowers to identify lenders with strong reputations for service.
- Research lenders’ experience with second mortgages as this expertise improves outcomes.
- Get a breakdown of all costs to clearly understand the loan’s expenses.
Reaching out to multiple hard money lenders is the best way to secure competitive loan offers. Having a specific business plan for the use of funds and repayment will help you present your strongest case to lenders as well. With a strategic approach, hard money second mortgages can be an effective and efficient way to access your real estate equity.
Loan Rates and Terms
A hard money 2nd mortgage carries more risk for a hard money lender than standard hard money loans. To mitigate this risk, the interest rates on hard money 2nd mortgages are often higher, and the repayment periods can be shorter than standard hard money loans.
When it comes to standard hard money loans, the loan amount is based on the LTV of the property, and a hard money lender is providing the primary loan on the property which covers a large portion of its value. Whereas hard money 2nd mortgages require an initial mortgage to be in place already and these loans are secondary to the first mortgage. They are also based on the property value and the balance of the first mortgage.
On standard hard money loans, the first lien is held on the property by the hard money lender as they are providing the primary loan. Whereas a hard money 2nd mortgage holds the second lien on the property, which means that the hard money lender providing this loan doesn’t have the first right to foreclosure if the borrower defaults on payments.
Due to the fact that hard money 2nd mortgages require a mortgage to be in place already, the lending criteria can be less stringent on these loans than standard hard money loans. The 2nd mortgage provided by a hard money lender will be more focused on the property’s value and the equity that the borrower has in the property, instead of the borrower’s credit score and financial history.
What Kind Of Property Can You Buy With A Hard Money 2nd Mortgage?
A hard money second mortgage can be used to purchase various types of properties including residential, commercial, or investment property options. Each lender may have different criteria with regards to the property types that can be funded with a hard money 2nd mortgage. The following properties can be considered:
- Residential properties: The properties included in this category for hard money 2nd mortgages are single-family homes, townhomes, condos, and multi-unit residential properties like duplexes and apartments.
- Commercial properties: Funding for office buildings, retail spaces, warehouses, or mixed-use properties can also be obtained through these loans.
- Investment property: Real estate investors can use hard money 2nd mortgages to purchase an investment property such as fix and flips, rental properties and short-term rentals.
- Land: Land financing varies according to each lender, but in some cases hard money 2nd mortgages can be used to fund the purchase of land or undeveloped properties.
Bear in mind that hard money lenders may have specific requirements about the property’s potential profitability, location, condition and more. These factors may impact whether the funding is provided for the property purchase.
Hard Money Second Mortgages Explained │ Ask Ryan
FAQ
How much of a loan can I get on a 2nd mortgage?
What is a hard money second?
What is a hard money loan in mortgage?
How hard is it to get a second mortgage?
Should you get a hard money second mortgage?
A hard money second mortgage can be the answer. Getting a second mortgage means you’re taking advantage of the precious equity from paying down your first mortgage. Borrowers often decide to use a second mortgage to fund projects or big expenses, or to pay down debt.
Who offers 2nd mortgage hard money / private money loans?
Marquee Funding Group offers 2nd mortgage hard money / private money loans for owner occupied and non-owner occupied properties. Property types include: single family residence, multi-family, commercial, industrial, and land. Furthermore, Marquee offers 2nd mortgages for either consumer or business purpose.
Who is a hard money lender?
A hard money lender can become an essential part of a borrower or investor’s financial team. In California, Marquee Funding Group is the ethical standard for hard money lenders. What’s your loan scenario? What makes hard money mortgages so different from conventional mortgages?
What is a 2nd mortgage?
A mortgage that goes subsequent / falls behind the 1st mortgage is called a 2nd mortgage. Marquee Funding Group offers 2nd mortgage hard money / private money loans for owner occupied and non-owner occupied properties. Property types include: single family residence, multi-family, commercial, industrial, and land.