Finding a lender for a 2nd mortgage can sometimes be challenging. And its made more difficult if the 2nd mortgages funds will be used to pay out an existing 2nd mortgage. Why is that? After all they’re both just 2nd mortgages. Not quite.
Reviewing years of underwriting and foreclosure history reveals a significantly higher default rate for 2nd mortgages where the new mortgage funds were used to pay out an existing 2nd mortgage. There may be a number of reasons for this, but in general, the first time the borrower did an equity take-out, the problems weren’t solved.
If you’re faced with resistance from lenders for this type of transaction, focus your application on the story about how the situation is materially different this time. Add in any supporting documents (new job, divorce finalized etc) that help build a credible story. Anything that you can add to the story that will help the lenders credit committee adjudicate the request will help your borrower.