What is Subordination?
In the mortgage world subordination, often referred to as a subordination agreement is simply a reference to a second mortgage a homeowner is attempting to secure. While acquiring a second mortgage is difficult if a home owner has great credit, an established and stable payment history, and built up equity; a second mortgage becomes much more of a viable option.
Why a Second Mortgage?
Lenders will obviously research what your second mortgage will be used for. While vacations or risky investments are often scrutinized and potentially denied lenders are normally more responsive towards issues such as:
- providing care for dependents
- education costs
- acquiring transportation
- emergency medical payments
- home remodeling, improvements or building value into the property in question
The better credit and financial history you have the more likely the lender is to give you the freedom with this second mortgage.
What about Subordination?
Subordination applies to this mortgage as well as the first mortgage and simply refers to the order in which the two loans are to be paid off. This will adjust the price of the interest rates for any loan that is not being paid on immediately.
For instance: Every loan taken out on a property by a customer has a certain lien position. These positions are determined by the dates that the loan transaction finished. The first lien is normally kept in such a position and while the first loan is still active the second loan is considered subordinate. When the first loan is completely paid off, then the second mortgage is no longer considered subordinate and is in the first lien spot.
If you are planning on acquiring a second “subordinate” mortgage it is important to have all of your ducks in a row. Find out what documents the bank you are using to receive the loan is going to need and be forthcoming with the information they need. With some of the longest turn around times ( more then thirty business days sometimes ) making sure to get everything right will save you alot of time and head aches.