Is it hard to get a second mortgage?

On Behalf of | May 22, 2020 | Firm News |

Like many business owners, you do not want to miss making mortgage payments on your property and risk losing your place of business. However, if you run into financial trouble, making those payments may become difficult, if not impossible. To head off foreclosure, you might explore taking out a second mortgage.

A second mortgage is like taking out a loan. You use the equity you have built up in your property to secure the mortgage. While this may seem like an attractive option, you should consider that getting a second mortgage will not be easy.

Difficulties in getting a second mortgage

Sfgate explains that while some lenders are willing to grant a second mortgage, they may hesitate if you are a foreclosure risk. The reason is because your first mortgage takes priority if your bank forecloses on your property. Your second lender will have to wait to see if any funds remain to pay the second mortgage. This is a risk that many lenders are not willing to take.

Lenders have ways to find out if you are a foreclosure risk. If you start missing mortgage payments, it can lower your credit score. Your current mortgage lender will send updates to your credit report about these missed payments. As a result, a lender you approach may pull up your credit report and discover you have financial problems, which can discourage the lender from giving you a second mortgage.

Alternatives to a second mortgage

If you are in a strong enough position to apply for a second mortgage, you may be able to explore other foreclosure alternatives. Rather than risk a lender turning you down for a second mortgage, you can approach your existing lender to refinance your property. This may lower your interest rate and monthly payments while giving you more time to pay the mortgage. You may also explore modifying your loan to temporarily lower what you pay on your mortgage each month.