We understand how frustrating it can be to search for a home in Austin. Half the battle is learning the key terms and what they mean in regards to Texas real estate. So each week we bring you Key Term Tuesday – our way of helping you decode the industry jargon that keeps you from owning your home search.
What is a Second Mortgage?
The expression second mortgage loan is used to describe a loan taken out on your home, that will be paid after the primary mortgage is paid off (second) in case of bankruptcy.
A second mortgage bridges the short fall between the primary first loan and the buyer’s down payment. Second loans are usually granted for a 15-20 year term and are typically fixed rate, although the interest rate will usually be higher than the first mortgage loan. Underwriting for second mortgages is also stricter than first mortgages because they are more risky for the lender.
Second mortgage purchase loans are the loan product of choice to avoid the dreaded mortgage insurance premiums (aka MMI or PMI) when first loans are more than 80% of the purchase price.
Second mortgages are not the same thing as a home equity loan, even though a home equity loan may, in fact, be second in priority depending on its recording date. Home equity loans which can be second in priority allow the home owner to draw on their equity typically when a cash lump sum amount is desired. Home equity loans are not purchase money loans rather they act like a kind of credit. Common usages for home equity loans are home renovation or credit card consolidation.
Lender’s will usually require an impound account when a buyer’s down payment is less than 20%. Impound accounts are optional with more than 20%.
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