2nd mortgage hard money lenders (private money lenders) are able to provide 2nd loans to property owners who currently have sufficient equity in their property. In these types of situations, the property owner typically has a low-interest 1st mortgage they want to keep long term but need for an additional short-term loan. A private 2nd mortgage allows the borrower to keep their long-term loan in place and still borrow against the equity in the property.
What is a 2nd trust deed?
A 2nd trust deed is a loan or mortgage recorded against real estate behind an existing loan (1st). A 2nd trust deed is also known as a junior lien. The timing of the recording of the loans against the property determines the priority (first recorded loan is senior).
2nd Mortgages for Bad Credit
Hard money lenders who provide 2nd position loans are typically able to overlook issues on a borrower’s record such as bad credit, short sales, loan modifications, bankruptcies, and foreclosures. As long as the real estate serving as collateral has sufficient equity relative to the requested loan amount hard money lenders can still consider providing the loan. In some instances a hard money 2nd loan can expedite the repairing of the borrower’s credit scores when used for debt consolidation. When used as a debt consolidation loan, the hard money 2nd can be used to refinance high-interest debt (20%+) down to high but more reasonable interest rate.
2nd Trust Deed Loan Rates
Hard money 2nd trust deed loans rates will be higher than interest rates for a 1st due to the increased risk to the lender. A 2nd behind a large 1st presents a great deal of risk to the lender of the 2nd. If the borrower does not make payments on the 1st loan, the lender of the 1st may foreclose on the borrower at which point the lender of the 2nd will have their loan wiped out. The extra risk for the lender in 2nd position is the reason for the higher interest rate.
Expect interest rates for California 2nd trust deeds to be in the range of 10-13%. The rate will depend on various factors including the specific lender, strength of the borrower, CLTV being requested and property location.
Business Purpose Loans vs. Consumer Purpose Loans
The majority of 2nd mortgage hard money lenders are only able to provide business purpose hard money loans. North Coast Financial is able to provide both business purpose (2nd position commercial loans) and consumer purpose hard money loans.
If the majority of the borrowed funds will be used for business purpose (investing in or starting a business, purchasing investment real estate properties) the loan will be considered business purpose. If the majority of the borrowed funds will be used for consumer purpose (remodeling primary residence, personal debt consolidation, purchasing a boat or RV) the loan will be considered consumer purpose.
Investment Property vs. Primary Residence
The type of real estate used as collateral for the 2nd mortgage does not determine whether the loan is considered business purpose or consumer purpose. A 2nd mortgage against a commercial property to pay off personal credit cards would be consumer purpose loan. A 2nd mortgage against a primary residence to purchase equipment for a business would be a business purpose loan.