Second mortgages are a great way to start investing in real estate because they will have lower down payment requirements for:
A commercial second mortgage, which is usually obtained from a mortgage company instead of a bank can be used for investing in real estate or financing part of a primary residence.
A second mortgage, because it will be in a junior position to the first mortgage and so will have a slightly higher interest rate as well as a lower term; ten or fifteen years rather than a twenty five or thirty year term.
Mortgage companies will lend on a loan-to-value ratio to reduce their risk. They’ll lend you about 80% of the value of the sum total of the first and second mortgages so if you default they can sell off a property quickly even below fair market value and get the full 100% of their money back.
You may be able to simply assume an existing second mortgage as part of your new financing for the property. If the seller is holding a second mortgage you may be able to assume it by just asking the mortgage company. You would need to qualify for the particular mortgage of coarse. If you don’t qualify for the existing second mortgage that is already on the property the mortgage company may very well offer you a new second mortgage of your own.
Here’ a creative idea you can use with a willing and motivated seller:
Even if you can’t get the second mortgage you may still buy the property “subject to” the second mortgage. In this way the seller stays on the second mortgage agreement as guarantor but you are making the payments. Sounds like a risk for the sellers but there is actually little to no risk because if you were to default on payments they would simply get the property back and would be responsible for no more payments than when they first owned the home.
keywords: Real Estate Investing Tips: Second Mortgage
Purchasing a property “subject to” isn’t the same as using the clause to attempt to circumvent the non-assumability of a first mortgage.
Use this second mortgage strategy as a great way to start investing in real estate.
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