Author: Michael BernsteinPublished:
In Austin’s real estate market, buying the home you want (especially in neighborhoods like Allandale and Travis Heights) often means stretching your budget—and your financing. As home prices climb across the metro area, more buyers are finding that getting creative is necessary. That’s where second liens come in.
A second lien, sometimes called a second mortgage, is a powerful tool that can help buyers increase their purchasing power, avoid private mortgage insurance (PMI), and even stay within conforming loan limits to sidestep jumbo loan restrictions. For homebuyers in Austin, where property in the more expensive neighborhoods like Crestview and Wooten can have values that push the edge of conventional limits, using a second lien strategically could save thousands in interest and fees or even be the difference between buying your dream home or not.
What Is a Second Lien?
A second lien is an additional mortgage on a property that’s subordinate to your primary mortgage. In a foreclosure, the lender holding the first lien (your main mortgage) gets paid first, while the second lien lender only gets paid if there’s remaining equity. Because of this risk, second liens typically come with higher interest rates.
But don’t let that scare you. If you have a down payment of 10% on a home, it doesn’t make a substantial difference to you if the financing comes in the form of a 90% first mortgage or a 75% first mortgage and a 15% second mortgage. In fact, second liens, when structured correctly, can actually lower your total borrowing costs. They’re available as home equity lines of credit (HELOCs) or fixed-rate second mortgages—and they’re not just for refinancing. Many buyers use them from day one of their home purchase.
The Conforming Limit Hack: Why Second Liens Matter in Austin
In 2025, the conforming loan limit in Travis County is $806,500. Borrowing more than that on your first mortgage bumps you into jumbo loan territory—where interest rates are higher, guidelines are stricter, and reserve requirements are more demanding.
Second liens help buyers stay under this limit by splitting the financing. For example, if you’re buying a $950,000 home in Central Austin, you could use a $805,000 first mortgage and a $50,000 second lien and have a down payment of $95,000 (or 10% of the purchase price). Even if the second lien has a higher rate (typically 7.5%–11% depending on your circumstances), the combined rate is often lower than what you’d pay on a full jumbo loan AND you aren’t subjected to the harsher qualifying requirements of a jumbo loan.
In neighborhoods like Mueller, Zilker, and Tarrytown, where home prices routinely cross the conforming threshold, this strategy helps buyers avoid stricter underwriting while still securing the property they want.
Avoiding PMI with Less Than 20% Down
PMI is typically required when your first mortgage exceeds 80% of a home’s value. But second liens can help you sidestep PMI—even with a smaller down payment.
Here’s how:
Let’s say you put 10% down. You could take an 80% first mortgage and use a 10% second lien to cover the rest. This keeps your loan-to-value (LTV) on the first mortgage below 80%, eliminating the need for PMI.
In a market like Austin—where PMI can tack on hundreds of dollars per month—this 80-10-10 approach helps lower your monthly payment and keeps more money in your pocket. Just make sure you do the math and understand how much you’re paying in additional interest vs saving on not having PMI. The math always needs to make sense!
Preserving Cash and Increasing Buying Power
Second liens don’t just help with PMI—they also give you access to more buying power without going jumbo. This can be a game-changer when trying to compete in Austin’s tight housing inventory.
They also help buyers keep more cash in hand. Instead of draining your savings on a massive down payment, a second lien lets you hold onto reserves for renovations, emergencies, or future investments.
How Much Can You Borrow on a Second Lien?
Second liens typically range from 5% to 20% of a home’s value. If you’re purchasing a $900,000 home in Austin, that’s somewhere between $45,000 and $180,000.
Lenders usually want your combined loan-to-value (CLTV) ratio to be 90% or lower. Many lenders will cap second liens around $250,000, though you might be able to unlock a bigger loan based on your borrower profile including the size of your down payment.
What’s the Interest Rate on a Second Lien?
Rates for second liens are higher than for first mortgages. In 2025, they generally fall between 7.5% and 11% depending on your credit, loan type, CLTV and lender.
Even with higher rates, the overall borrowing cost can be lower than going jumbo—especially if you plan to refinance in a few years.
Who Qualifies for a Second Lien?
To qualify in Texas, you typically need:
- A credit score of 700+ (some allow as low as 660)
- DTI under 45% (including both loans)
- Solid income and reserves
Importantly, your second lien doesn’t have to come from the same lender as your first. This is where mortgage brokers shine: they help pair first and second lien lenders, coordinate approvals, and shop for the best blended rate.
Can First-Time Buyers Use Second Liens?
Absolutely. While more common with move-up buyers who are less risk averse, second liens are a great option for well-qualified first-time buyers in Austin looking to avoid PMI or stay within conforming loan limits.
Just be sure to compare all your options—PMI vs second lien, jumbo vs conforming. The right broker will help you run the numbers and understand which path saves you the most in the long run. LendFriend works with several trusted and respected second lien lenders who offer very competitive rates - PLUS these lenders are very experienced with purchase transactions so they are able to close on your timeline with no delays.
Not Just for Purchases: Second Liens After Closing
Second liens aren’t just for getting in the door. Many Austin homeowners use them later on for remodels, college tuition, or debt consolidation.
But since the pandemic, when home prices really started ratcheting up, using second liens at closing has become one of the most efficient financing hacks for Austin buyers.
Final Thoughts: Should You Use a Second Lien to Buy in Austin?
Second liens offer a lot of flexibility. They can help you:
- Avoid PMI
- Increase buying power
- Preserve savings
- Stay under jumbo limits
In a high-cost market like Austin, that’s a powerful combo.
The key is working with a mortgage broker who knows how to structure these deals and match you with compatible lenders. At LendFriend Mortgage, we help buyers compare side-by-side scenarios and understand how second liens can support their goals. Give us a call at 512.881.5099 or get in touch with me by completing this quick form, and I'll be in touch as soon as possible.
