What Is a Second Mortgage? How It Works and Expert Recommendations

Do you know how much your home is worth? According to CoreLogic, the average homeowner is sitting on $311,000 in equity. Second mortgages offer a pathway for tapping into that equity and withdrawing cash to cover home repairs, improvements, and other expenses. 

A second mortgage is a loan that uses your home as collateral. It can help you work toward your financial goals, but it isn’t right for every situation. Let’s look at how second mortgages work so you can decide whether one makes sense for you.  

Table of Contents

1. What is a second mortgage or second-lien mortgage?
2. How to get a second mortgage loan 
3. Where to get a second mortgage 
4. Should you get a second mortgage? 

What is a second mortgage or second-lien mortgage?

A second mortgage, or second-lien mortgage, is a loan that allows homeowners to borrow against the equity in their home while keeping their original mortgage in place. It’s called a “second mortgage” because it takes a secondary position behind the primary mortgage in the order of repayment. If you default on your loans, your first mortgage lender will be paid before the second mortgage lender.

Second mortgages can take two main forms:

1. Home equity loan: A lump sum loan with fixed payments and a fixed interest rate.
2. Home equity line of credit (HELOC): A revolving credit line that you can draw from as needed, similar to a credit card.

Both types of mortgages use your home as collateral, which means that if you fail to repay, your lender can foreclose and take your home. These loans are commonly used to finance large expenses—home improvements, debt consolidation, or major life events. However, they come with higher interest rates than first mortgages because they’re riskier for lenders.

Understanding how second mortgages work can help you determine whether tapping into your home’s equity is a smart financial move.

How to get a second mortgage loan 

Getting a second mortgage isn’t much different from getting a first mortgage to buy a home. You’ll need to choose a lender, meet the requirements for a loan, and apply. 

We’ll cover recommendations for second mortgage lenders below. For now, let’s dive into the requirements for a second mortgage and what the application process typically involves. 

How to qualify for a second mortgage: Requirements

Lenders use several factors to decide whether someone is eligible for a second mortgage. The list includes:

• Credit scores
• Income and debt
• Home value

Your credit scores offer a snapshot of how you manage debt. A higher score suggests you pose less risk to the lender, which can translate to a lower interest rate and better terms. There’s no set minimum credit score for a second mortgage, but a FICO score of 670 or better generally indicates good creditworthiness.

Lenders also look at your income and current debt to ensure you can handle the payments for a second mortgage. Your debt-to-income ratio (DTI) measures how much of your income goes to debt repayment monthly. The Consumer Financial Protection Bureau (CFPB) suggests a DTI of 36% or less (including your current mortgage).

Last, you’ll need equity in your home to get a second mortgage. Lenders use two metrics to measure your equity:

• LTV. Your LTV is how much equity you have. To find LTV, divide your current mortgage balance by your home’s appraised value. 
• Combined LTV, or CLTV. Your CLTV is the ratio of all the mortgage loans on your home (first and second) versus its appraised value. 

Lenders use your LTV and CLTV to decide how much to lend and what interest rate to charge. We have a helpful home equity loan calculator you can use to find your LTV. 

What LTV is needed for a second mortgage? It varies, but generally, lenders expect you to own 10% to 20% of your home to qualify for a second mortgage. 

Taking out a second mortgage: What to expect

If you’re leaning toward a second mortgage to fund your goals, it helps to know what to do and in what order. Here’s how the process might go for a typical homeowner. 

1. Estimate your home’s value. You’ll want to make sure you have some equity before you try to apply for a loan. Again, you can use your home equity loan calculator to come up with a number. 
2. Decide what kind of second mortgage you want. Should you get a home equity loan, or would a revolving HELOC be better? Comparing home equity loans versus HELOCs can help you decide which one is the right fit. 
3. Shop around. It’s smart to get rate quotes from at least three lenders so you have an idea of the second mortgage terms you might qualify for. You can also see what the monthly payments might be to make sure they’re affordable. (We recommend starting with LendingTree, a marketplace that lets you see your prequalified rates from several lenders without affecting your credit.)
4. Choose a lender and apply. At this stage, you’ll select a lender and apply for a second mortgage. The lender will likely request an appraisal to get a firm valuation of your home. This might require an in-person appraisal, though some lenders allow drive-by or automated valuation models (AVMs). 
5. Review the terms. If you’re approved, take time to review the terms of your second mortgage so you know what you’re agreeing to and what you’ll pay. 
6. Close and receive funding. If you’re satisfied with the loan terms, you can head to closing. You’ll sign all the loan paperwork, pay your closing costs, and set up arrangements to get the proceeds. 

If you’re getting a home equity loan, your lender might offer a wire transfer or direct deposit of the loan funds to your bank account. With a HELOC, your options for accessing the money might include paper checks, a debit card, or in-person withdrawals at a bank. 

Where to get a second mortgage 

If you’re happy with your current mortgage lender, you might start your search for a second mortgage there. But if you’re open to other options, you can take your search online to find lenders that offer second mortgage loans. 

Here are a few quick tips for evaluating second mortgage lenders. 

• Check the qualification requirements. Some lenders publish minimum credit score, DTI, and LTV requirements. If you’re able to find this info for a lender you’re considering, look at how those requirements align with your credit scores, debt, income, and home equity.
• Watch for credit score impacts. If a lender offers second mortgage rate quotes, make sure getting your rate won’t affect your credit. Having a new inquiry on your credit history could cost you a few points, which could make a difference in the second mortgage terms you qualify for. 
• Ask for recommendations. Other homeowners can be an excellent source of referrals for second mortgage loans. If you have friends, family members, or coworkers who have gotten a second mortgage, you might ask them which lender they used and what they liked or didn’t like about the process. 

Here are several options to consider as you start your search for a second mortgage lender. 

Need more recommendations? Explore the best HELOCs and best home equity loans to see how other top lenders compare. 

Second mortgages for bad credit

We couldn’t find reputable lenders that offer second mortgages for borrowers with bad credit—in the FICO score range of 300 to 579. 

I advise clients to focus on improving their credit with a strategic plan. However, if they need funds for urgent expenses or to consolidate high-interest debt, we might consider alternatives. These include home equity agreement programs, which require careful evaluation of their terms; FHA Title I loans, which can offer accessible funding; or unsecured personal loans for smaller needs. Each option should be carefully assessed for suitability.

Here are several lenders offering second mortgages for fair credit: 

If you have bad credit and want to access your home equity before taking time to build your credit, we recommend considering a home equity agreement.

Hometap is our top choice. It can provide a financing solution to homeowners with credit scores as low as 500 in as little as three weeks. For more about this solution, check out our reviews of the best home equity agreements.

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Alternatives to Home Equity Loans or HELOCs

Should you get a second mortgage? 

Second mortgages can help you pay for planned expenses or emergencies, and the rates may be lower than alternatives such as credit cards or personal loans. To wrap it up, let’s look at a few situations where you should (or shouldn’t) leverage your equity with a second mortgage. 

If…	Consider a second mortgage?
You have good credit and could qualify for a low-interest-rate loan	✅ A second mortgage could be a cheaper way to borrow than a credit card or personal loan.
You’ve done the math and know how much you can afford to pay monthly	✅ Second mortgages can offer flexible repayment terms so you can choose a payment that fits your budget.
Your credit score is lower than 580	❌ It could make sense to work on improving your credit first to qualify for a better rate.
You’re carrying a sizable amount of debt, or your income and employment status are uncertain	❌ Adding secured debt in the mix could strain your budget or put you at risk of losing your home if you’re unable to make the payments.

There are several reasons I might advise against a second mortgage. If a client’s income is unstable or they risk unemployment, taking on more debt can be hazardous. If they plan to sell their home within three years, fees may outweigh any benefits. Also, using these funds for nonessential expenses—such as luxury vacations or risky investments—typically isn’t wise. In those scenarios, a second mortgage may not align with their financial goals or risk tolerance.