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Posted on 04/20/2021 in Second Mortgages

Simple Guide to How Second Mortgage Hard Money Works

Do you feel like you need a new option to pay down debt or increase your credit score? Is your business growth at a standstill and you’re not sure how to move forward? 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. For business purposes, a second mortgage can be used to purchase a new office or equipment to grow your business.

Not all second mortgages are the same. Traditional lenders such as banks make it difficult for people to take this option due to the strict requirements and documentation they need. Borrowers and brokers in California instead can build a relationship with a hard money lender who focuses on the merit of the deal above all else.

Learn how Marquee Funding Group can help borrowers expand their business or get back on their feet with less debt and better credit.

What is a Second Mortgage?

When a borrower purchases a home, they typically take out their first mortgage from a bank, and the property is used as collateral. The borrower makes monthly payments on their mortgage, and as time passes, the value of the home increases as well. The difference between a borrower’s remaining mortgage payments and the current market value of the home is known as its equity.

A borrower then can decide to take out a second mortgage to use this equity for consumer or business purposes. Borrowers can get a second mortgage from traditional lenders or hard money lenders, but the requirements for each vary greatly. 

Choose a lender carefully, because this choice can result in long-lasting relationships that can help borrowers fund many future projects quickly and simply. 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?

We’re proud of our reputation as a common sense, no-nonsense private money lender. If you need a mortgage approved, let us take a look. We do fund loans others won’t.

Hard Money Mortgages vs Conventional Mortgages

What makes hard money mortgages so different from conventional mortgages? A borrower most likely will have acquired their first mortgage through a bank, because that’s the most common route. If that’s the case, you probably remember all the requirements, documentation, and back-and-forth with the realtor and mortgage lender.

For second mortgages, traditional lenders offer standard home equity loans and Home Equity Lines of Credit (HELOC). The problem is, these lenders see second mortgages as a higher risk. If they offer this option at all, they need to make sure you have the following:

  • Significant equity paid through your first mortgage
  • Steady employment history
  • High credit score
  • Low debt-to-income ratio

Hard money lenders won’t have many questions for a borrower about their situation. They will want to know the property address and a short submission story. Other than that, California hard money lenders such as Marquee Funding Group examine deals on a case-by-case basis, so documentation requests will vary.

Also, a hard money second mortgage can be more beneficial than a HELOC because it doesn’t contribute to your debt or appear on your credit report.

Owner-Occupied and Business Purpose Seconds

For second mortgages, Marquee Funding Group offers both owner-occupied and non-owner-occupied, as well as consumer-purpose and business-purpose to California borrowers. What’s the difference? Simply put, owner-occupied means a borrower is using a property as their primary home, and non-owner occupied means they are not.

Business-purpose second mortgages often are used for the following:

  • New business start-up costs
  • Purchasing a new office or equipment
  • Purchasing an investment property
  • Operating capital
  • Buying out partners
  • Single-family, multi-family, commercial, industrial, construction, and land

And consumer-purpose second mortgages can be used for purposes such as this:

  • Paying off credit cards, medical bills, student loans, or foreclosure bailouts
  • Financing education
  • Home improvements
  • Reinstating a first mortgage, delinquent property taxes, or other property secured debts
  • Reinstating interest that has accrued as a result of not paying your mortgage because of the COVID-19 pandemic
  • Pay a legal settlement
  • Settle a divorce
  • Dissolve a family trust 
  • Pay off siblings and heirs/settle estate inheritance issues
  • Resolve probate issues
  • Fixing property with deferred maintenance or safety issues
  • Paying off a bankruptcy, lending to people that have a foreclosure on their record, getting people out of default or foreclosure

Property types include single-family, 1-4 unit apartment buildings, and construction.

Credit Qualifications

One of the biggest hurdles borrowers face when working with traditional lenders is the credit qualifications. Especially since second mortgages are seen as higher risk, the credit score requirements are steep. Borrowers who don’t have the best credit score, especially if they were hit hard by the COVID-19 pandemic, may quickly be denied their loan request.

A poor credit score shouldn’t be seen as an instant turn away, and Marquee Funding Group understands the frustrations California borrowers face. It’s difficult to keep moving forward when you are being held back by credit decisions that often were made out of necessity.

Our team may accept credit scores as low as 500, depending on the merits of your deal and any other information we request. We always aim to push forward with deals that banks deem difficult or impossible, using common sense instead of strict government-backed requirements.

Debt-to-Income (DTI) Ratios

Traditional lenders use Debt-to-Income (DTI) ratio to see how well a borrower manages debt. This can help them decide if the borrower can afford to pay their mortgage. DTI is calculated by dividing monthly debt by monthly gross income. The result is a percentage. The higher the percentage, the higher the risk.

Banks sometimes will accept a DTI of up to 50%, but lower is ideal. Marquee Funding Group will accept a DTI ratio of up to 60% for hard money second mortgages. This requirement can make all the difference to a borrower. To find out your DTI, you can use this calculator.

Quick Closings

The greatest benefits of using a hard money lender for a second mortgage are speed and flexibility. Marquee Funding Group offers same-day approvals and can close on a deal in as fast as seven days. HELOCs can take at least 30-45 days to close.

Marquee Funding Group also offers the following:

  • Common-sense underwriting
  • Loan amounts from $50,000 to $20 million
  • Purchase money, rate-and-term refinance, and cash-out refinance options

Above all else, Marquee Funding Group strives to provide a respectful, smooth experience for borrowers and brokers, from start to finish. Building relationships is important to us. We aim to be as upfront, honest, and open as possible while we work out your deal. Contact our team today to have us review your unique situation. Or, if you already know what you need and are ready to begin, apply now and we will contact you soon.

Photo by Grant Durr on Unsplash