What is a Second Trust Deed Loan - The Borrower's Guide for California and Arizona Real Estate
What Is a Second Trust Deed Loan?
The second trust deed loan is a little-known financing method that offers major advantages over traditional financing methods. This article explains what they are, how they work, and how they can benefit homeowners in Arizona and California.
Independent Lending offers hard money second trust deed loans in California and Arizona. This unique product allows homeowners to convert some of their home equity into cash, which can be used for a variety of purposes.
Second Trust Deed Loans in California and Arizona
A second trust deed loan (also known as a “second deed of trust”) is a specialized type of financing that allows homeowners to use their properties as collateral.
A deed of trust is a legal agreement similar to a traditional mortgage loan. The main difference is that a standard mortgage loan usually only involves two parties (the lender and the borrower), while a deed of trust also includes a neutral third party. This third party, known as a trustee, holds rights to the real estate until the loan is paid off.
It’s called a “second” deed of trust, because it’s used in cases where the homeowner already has a first or primary deed of trust in place. If you took out a loan when you first purchased your home, that would be considered your “first mortgage” (or first deed, in this case). If you subsequently took out a second loan using your property as collateral, that would become the second deed of trust.
It’s also important to understand that a second trust deed does not affect your primary home loan. So, if you currently have a low interest rate on your first mortgage or deed of trust loan, you can keep that great rate. The second deed is entirely separate and will not change your current financing situation.
California and Arizona Are Deed of Trust States
As mentioned above, we offer second trust deed loans to homeowners in California and Arizona. Those are two of the states that allow this type of financing.
Some states use mortgage loans as the primary tool for home financing, while other states use the deed of trust. And then there are those states that allow both types of legal agreements to be used.
- California is considered a deed of trust state. According to the book California Real Estate Finance: “Although the mortgage was the original form for real estate in California, the deed of trust was introduced in the early 1900s and evolved to become the dominant security instrument for financiers of California real estate.”
- Arizona is one of the few U.S. states that allows both the mortgage loan and the deed of trust to be used, though the latter is more common. According to the Phoenix-based Combs Law Group: “Arizona law provides for mortgages, and since 1971 Arizona law also provides for deeds of trust. Most mortgage lenders, however, prefer deeds of trust…”
Who Offers Hard Money 2nd Trust Deeds, and Who Uses Them?
Not all hard money lenders offer a 2nd trust deed loan. Second mortgages (or trust deeds) are often risker for lenders, because the primary loan has priority and gets paid first in the event of borrower default. Independent Lending specializes in hard money 2nd trust deed loans. We have the experience and 5 star service to get them funded quickly and with minimum documentation.
As for the borrowers, we find that the following types of individuals can benefit from hard money 2nd trust deed loans in California and Arizona:
• Homeowners with bad credit who might not qualify for a traditional second mortgage or deed of trust.
• Investors seeking a bridge loan or other form of hard money lending.
• Business owners who want to use the equity in their primary home or rental property to inject capital back into their business.
• Homeowners who need funding quickly and with less hassle and paperwork than a traditional lender would require.
These are not the only groups who could benefit from hard money second deed of trust financing. These are just some of the scenarios we deal with on a regular basis. If you fall into one of these categories (or something similar), please contact us to learn more about your options.
Benefits for Homeowners and Borrowers
We’ve touched on some of the benefits of second trust deed loans in previous sections of this article. But it bears repeating. Here are some the ways a hard money second deed of trust could benefit Arizona and California homeowners:
• Offers a financing method for homeowners with bad credit and/or little income
• You can borrow based on your home’s equity, versus your income situation
• Faster funding with less paperwork and hassle, compared to traditional
• Funds can be used for many purposes, from business capital to home renovation
• Allows homeowners to keep their primary deed or mortgage intact