Taking out multiple mortgages is possible, but also complicated. Having two mortgages at the same time requires careful planning and consideration of how it will impact your finances. While it may make sense in certain situations, there are risks involved that you’ll need to weigh before moving forward.
Is It Possible to Have 2 Mortgages?
Yes, you can have two mortgages at the same time, even from two different lenders. This is known as having a first and second mortgage or being “doubly mortgaged.”
Some common reasons for taking out a second mortgage include
- Tapping your home’s equity for a major expense like home improvements or to pay off high-interest debt
- Buying a second home or investment property
- Needing a temporary bridge loan during a home purchase
- Getting cash to start a business
There are no legal limits on how many mortgages you can have as long as you meet the requirements and your lender agrees. However, having two mortgages does come with some risks.
Pros and Cons of Having 2 Mortgages
Before taking the plunge, weigh the potential benefits against the drawbacks of juggling two home loans.
Pros
- Access cash from your home’s equity without selling or refinancing
- Consolidate higher interest debt into a lower rate
- Finance a second home with flexible repayment terms
- Bridge the gap during a complicated real estate transaction
Cons
- Higher monthly payments and housing costs
- More complexity when buying/selling a home
- Increased risk of foreclosure if you default
- Potentially lower savings over time
- Difficulty qualifying for a second loan
Carefully calculating the costs is crucial. A second mortgage often means higher interest rates, closing costs, and monthly payments that eat into your budget and savings.
Can I Get a Second Mortgage from a Different Lender?
Yes, your two mortgages can come from different banks or lenders. This gives you flexibility to shop around for the best rates and terms on each loan.
Borrowers often choose to go with a different lender for their second mortgage because:
- Their existing lender won’t approve a second loan
- They find better rates or terms with another lender
- It’s an entirely different type of mortgage (FHA, USDA, VA, jumbo, etc.)
- They want to tap home equity through a HELOC from their current bank
There’s no rule requiring you stick with the same institution. But having two lenders can make it harder to keep track of your payments.
How Do You Qualify for 2 Mortgages?
Qualifying for one mortgage is hard enough. So how do you qualify for two from different lenders?
Credit score requirements
For the first mortgage, most lenders want you to have a credit score between 620 and 680. Because they’re riskier, second mortgages usually need a score of at least 700. A strong credit history is key.
Income calculations
Lenders will review your debt-to-income ratio (DTI), calculating your total monthly debts divided by gross monthly income. Most want your DTI below 50% on the first mortgage. Second mortgages may only approve DTIs under 45%.
Down payment and equity
You’ll have to make a down payment on the first mortgage, which is usually 10% to 20% of the purchase price. You will need to have between 30% and 40% equity already built up in the home to get a loan from the second lender.
Property appraisal
The combined loan amounts can’t exceed about 80-90% of the home’s appraised market value. Appraisals help prevent overborrowing.
Mortgage guidelines
All other mortgage qualifications apply, like proof of income, employment history, assets, and property inspection. Second loan programs may have distinct guidelines.
Existing mortgage terms
Your current mortgage must be in good standing. Second mortgages are riskier, so lenders want no late payments, defaults, or modification hardship on current loans.
Credit impact
Too many credit inquiries and new accounts from mortgage shopping will ding your score. Aim to apply within a short 2 week period to minimize hits.
How Do You Pay 2 Mortgages?
Once approved, you’ll make separate principal and interest payments to each lender monthly. Your first mortgage payment is typically higher, with the second smaller.
Some strategies to afford two mortgage payments:
- Lower other housing costs (property taxes, insurance, HOA fees)
- Reduce discretionary spending
- Funnel any raises, bonuses or tax refunds toward payments
- Rent out part of your property (like a basement) for extra income
- Pay down highest interest debt first to maximize savings
- Get a roommate to help cover costs
- Refinance your first mortgage to a lower rate
A higher total housing expense ratio (front-end DTI) also needs to fit within your overall debt picture and budget. Create a detailed monthly spending plan and make sure you have savings to cover emergencies.
Is Refinancing a Better Option?
Instead of a second mortgage, it may make more sense to refinance your current home loan. With today’s low mortgage rates, you can likely get a lower rate than your existing first mortgage.
Benefits of refinancing vs. a second mortgage:
- Pay off your first mortgage faster
- Lower interest rate = monthly savings
- Consolidate into one easy payment
- Tap cash from your home’s equity
- Usually lower closing costs than a purchase mortgage
- Simpler process with one lender
Crunch the numbers to see if you’ll come out ahead by refinancing your current balance. Online mortgage calculators can show your estimated monthly savings.
Weighing the Risks
Juggling two mortgage payments does come with financial risks. Being aware of potential pitfalls can help you make the smartest decision.
Key risks include:
- Greater chance of missed payments and foreclosure
- Owing more than your home’s market value if prices dip
- Harder time selling if you owe multiple mortgages
- Late fees and hits to your credit if you miss payments
- Higher interest costs over the loan terms
Don’t take the second mortgage lightly. Defaulting can jeopardize your home. Work closely with lenders if you ever struggle to make payments.
Tips for Managing 2 Mortgages
If getting a second mortgage makes financial sense for you, here are some tips to manage the process smoothly:
- Shop lenders to compare rates and fees
- Understand all costs, terms, and fine print before signing
- Time applications close together to minimize credit impact
- Pick lenders that allow online payments and account access
- Sign up for automatic payment withdrawals from checking
- Track payments closely in a calendar or spreadsheet
- Watch for mail from both lenders and respond promptly
- Build up emergency savings to cover periods of higher expenses
- Monitor your credit and stay on top of payments
Stay organized and proactive, and you can successfully tackle being doubly mortgaged. But consult a financial advisor if it’s ever causing excessive stress or budget strain.
Key Takeaways
While juggling two mortgages is possible, it requires careful planning. Before taking the leap, ensure you can truly afford the payments long-term and avoid risking your financial security. Crunching the numbers, checking your credit, and comparing all costs is essential.
In many cases, refinancing or alternative borrowing options like home equity loans may be wiser solutions. But for some borrowers, a second mortgage can provide needed cash in a smart way if done carefully. As with any major financial move, understand clearly what you’re getting into before signing on two mortgage dotted lines.
Should I tell my lender I’m applying with more than one company?
It doesn’t hurt to tell mortgage lenders that you are shopping around. In fact, you should tell them. Multiple applications have been shown to increase competition between lenders.
In our current economy, mortgage competition is thriving. If you have a good credit history, mortgage lenders may be more likely to compete for your business.
When you inform lenders that you are shopping and comparing, they are typically more inclined to present their best offer from the outset.
Plus, in the era of online mortgage brokers, prequalification, and preapproval, borrowers today have more tools than ever before to get the best interest rate, without having to necessarily submit a formal mortgage application.
Get preapproved by multiple lenders
If you want to explore options without committing to a formal loan application, consider mortgage preapproval or prequalification:
- Based on your basic financial information, prequalification gives you a rough idea of how much you can borrow.
- When you get preapproved, your credit report, bank statements, pay stubs, and income are looked at in more detail. A preapproval letter, which is good for 90 days, lets you know how much a lender is willing to lend.
Can I WORK With 2 LENDERS At The SAME TIME?
FAQ
Can you apply to two different mortgage lenders?
Yes, you can apply for a mortgage from multiple lenders simultaneously. This is often the best way to compare fees and interest rates and get the best deal.
What is the 3 7 3 rule in mortgage?
The TRID (Truth in Lending-RESPA Integrated Disclosure) Rule, which is also known as the 3-7-3 rule, sets specific dates for mortgage disclosures and loan closings. It ensures borrowers have sufficient time to review important loan details before finalizing their mortgage.
Is it possible to have 2 mortgages at the same time?
It is common to take out a second mortgage in the form of a home equity loan, but people usually do not take out more than two home loans on the same primary residence at the same time. Sep 19, 2024.