What Lenders Look Out For In Second Mortgage Applications?

Also known as junior-lien, a second mortgage uses your home as collateral, while you have already taken another loan using your home as collateral. Second MortgageHome Equity Lines of Credit and Home Equity Loans and Mortgages are included among second mortgage loans.

Approval of a second mortgage is genuinely a little difficult because you need to provide satisfactory financial resources to support your mortgage application.

However, a few things can derail your application. Have a look on the essential features that lenders look out for in your mortgage application for a safe bet.

Debt-to-Income Ratio

The debt-to-income ratio is the ratio of your all earnings compared with all debts. When you meet a lender, they evaluate your income resources to calculate your earnings. They will calculate all debts and subtract the sum of debt from the sum of your income. If the value is satisfactory, enough for mortgage repayments then the lender will approve your mortgage application. However, the standard of satisfactory total differs from lenders to lenders. You may find a lender in the market who is willing to work on low amount of the total but the research process will consume a lot of time.

Credit Score

The credit score becomes more important in second mortgage applications. The lenders would want to check the history of your previous mortgages and loans to evaluate your repayment history. The credit score will provide the details of your late payments also.


The most important thing in second mortgage process is your equity. The lenders will evaluate your equity i.e. the amount you have collected on your home. They will compare it with the remaining balance of your first mortgage. The lenders may ask you about any other savings or reserved money like emergency funds for financial obligations or even mortgage payment insurance.

Employment History

The financial obligation on people doubles when they take out a second mortgage. This means that if you have large employment gap, then you should have doubled resources or backup to repay the instalments of primary mortgage as well as the second mortgage. Good employment history, along with mortgage payment insurance or employment insurance reveals that you are able to repay the instalments of both mortgages.

How to Prepare for a Second Mortgage

The following tips will help you to prepare yourself before going to a lender.

  • Be prepared to tell the truth about your financial resources and obligations. The lender will see your credit report therefore, telling lies in the meeting will not provide any favours to you.
  • Are you planning to change your company? Has someone else already recruited you from the next month? Make sure to explain your employment woes to the lender.
  • Shop around and meet with maximum number of lenders.
  • Do not exceed the limit. Take mortgage, which you can actually repay.

Along with these, make sure to meet a financial advisor or mortgage advocate to learn about the process, mortgage structure, financial restrictions, and other relevant issues in second mortgage process.


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