How Much Do I Have to Put Down on a Second Home Mortgage?
A second home mortgage provides a way for a homeowner to take out a loan secured by the equity in his home. Generally, a second mortgage is a way to raise cash, so the lender doesn't require any type of down payment requirement, although the lender may charge fees associated with the second home mortgage.
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Home Equity
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A person has home equity when her home is worth more than her outstanding mortgage loan. For example, a home worth $200,000, secured by a mortgage with a balance of only $100,000, has $100,000 in home equity. Second home mortgages allow homeowners to take advantage of home equity by converting it into cash without needing to sell the home.
Lender Fees
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Lenders generally don't provide second home mortgages free of cost. First, the second home mortgage lender requires interest payments on the second home mortgage loan. Additionally, the lender likely charges an origination fee, application fee, recording fees and other administrative fees. These costs are generally set to cover the lender's administrative costs of processing and completing your second home mortgage application. Lenders may require you to provide this in cash before you actually close on the loan, but they often allow you to simply deduct the costs from the amount of cash you receive from the lender.
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No Down Payment
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Because a second mortgage loan hinges on the amount of home equity you have, the lender doesn't require a down payment. Indeed, a down payment would defeat the purpose of a second home mortgage, which is to raise cash for the homeowner.
Down Payment Replacement
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Certain second mortgage loans are designed to replace the down payment that would otherwise be required on a first mortgage loan. First home mortgage lenders often only fund a mortgage for 80 percent or 90 percent of the value of the home, which means the homeowner must come up with the 10 percent or 20 percent balance. Borrowers without enough cash savings to make that down payment can take out a second mortgage loan to cover the gap left by the first mortgage loan. In other words, the second home mortgage loan replaces the borrower's down payment obligation.
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References
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