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September 26, 2010

A reader question about second mortgages

Olynn, a reader who moved to Baltimore for work, is stuck with a house in Michigan because it's more than halfway underwater. Olynn, who's renting that house out and leasing a place here to live in, has a question:

"How open are lenders to a second mortgage? I have excellent credit and minimal debts."

It's been a while since I've talked to mortgage folks about this issue. I'm guessing it's pretty tough these days, but perhaps someone with day-to-day knowledge on the topic could weigh in?

Posted by Jamie Smith Hopkins at 8:40 PM | | Comments (4)
Categories: Mortgages


Because he doesn't have at least 30% equity in the departing home, he has to count the old mortgage payment against his income even if he does have it rented out. Buying a new home out here is simply a question of making enough money to qualify for both debts at the same time. That calculation currently is gross monthly income x 40%=the maximum allowable monthly payments towards all debts including all property taxes and hazard insurance.

But to back the train up and ask the important question, why do you want to try and catch a falling knife?

I think the question relates to the current home in Michigan, not purchasing a new home. There is no chance of getting a second mortgage on the home in Michigan. That home is not even considered a primary residence at this point. While the person may feel obligated to continue making payments on a home that has lost 60% of its value, the smart thing to do is to walk away.

Lenders generally dont want 2nd position period. Though it wasnt clear from the question about which home you want to borrow against, generally if you need to borrow more than 80ltv on owner occ, your toast. You cant get a second thru anyone on an investment prop. That was pretty much true during the loose credit days as well though not absolute.

I bought a house last July and I was able to get a 2nd mortgage so I could avoid MI. However, it was difficult finding someone to work with me. I was putting down 15% and I had the ability to put down the entire 20% but I wanted to keep more in the bank in case of emergency. The rate on the 2nd ended up being 7% compared to my first at 4.5%. Because of the high rate I am going to finish paying it off this year now that I feel a little better about the economy.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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