How Much Equity Do I Need for a Second Mortgage?
If you’ve been thinking that a second mortgage might be the right option for you so you can free up some cash flow or consolidate some debt then you likely have some questions about how to qualify for one. Similar to your primary mortgage, when you applied for it, there are certain financial requirements you’ll have to meet to qualify for a second mortgage. Unlike your primary mortgage, though, a second mortgage also looks at the available equity you have in your home. Here’s what you need to know about the equity in your home to qualify for a second mortgage.
It’s not the number of years
When it comes to borrowing against your home, lenders will use a general rule of thumb to determine the monetary value they will give you. Overall, lenders will allow you to borrow up to 80% of the total value of your home on all mortgages combined. For example, if you home is worth $100,000 then your first, and any subsequent, mortgage can only add up to $80,000.
The rules aren’t firm, though
Sometimes if you, and your spouse, have good or excellent credit lenders will allow you to borrow up to 95% of the value of your home especially if you don’t have other consumer debt, or are planning to pay off the debt with your second mortgage so it will free up cash flow for your home.
So, how much equity do I need then?
As a general rule, you should plan that you’ll need to have paid down at least 20% of the value of your home. Over time, the value of your home may increase or decrease and you can have it appraised if you believe it’s worth more so that it works in your favour.
When it comes to talk about your options for a second mortgage, we will walk you through everything you need to know about it!