Quick Tips For Second Mortgage Loans

There are various forms of second mortgage loans and you have the freedom to choose which type of loan suits you best

. In general, applying for a second mortgage may be almost similar to qualifying for a first mortgage. However, the term second mortgage may be rarely used nowadays as it is now more commonly called a home equity loan. Traditional second mortgage loans may be slightly different from the modern home equity loans. A home equity loan utilizes the difference between the current market value and the principal balance of your mortgage as collateral for a separate second loan against your home without replacing your first mortgage. Compared to first mortgages, second mortgage loans may be charged with a higher interest rate.

Generally many people opt for second mortgages to help fund their remodeling costs, avoid private mortgage insurance (PMI), purchase additional homes or as part of their debt consolidation program. There may be other reasons why people take second mortgages on their homes but you may want to take note that sometimes the reasons may simply not be viable. It may be incredibly tempting to take out a large amount of money with a second mortgage but you may need to remember the basic point that you are borrowing against your home and should you default on the payments your creditors may eventually take over your home.

Similar to shopping for refinance mortgage, you may not like to take the first second mortgage rate you come across but may want to shop around for the best rates so you may get the better end of the deal. You may also want to try to avoid second mortgages with default penalties if you miss or are late for a payment. You might think it may never happen to you but sometimes things may be out of your control and you might be forced into a situation that you never thought you would be in.

When applying for a second mortgage, you probably want to gather all relevant information pertaining to your first mortgage as your lender may like to review your income documents, bank account information and employment history. You might want to contact your lender to see if you could be issued with a pre-qualification notice after you have emailed them your credit report and entered your income into your lenders automated underwriting system. If your lender shows an inclination to approving your second mortgage, you may have to prepare for a face-to-face interview where you may be required to verify your income and other information, similar to the process you had to go through with your first mortgage.

You may also want to be available during the underwriting process after your face-to-face interview with your lender because they might need to contact you to re-verify certain information. You may need to resolve any issues that may arise. You may also have to prepare for an appraisal conducted by your bank or lender to determine the value of your home and whether there is enough equity in your home for the bank to lend on it. Also similar to your first mortgage, you may have to attend your second mortgage closings but some lenders may have special closing methods for equity loan so you might want to be present during the closing that may be held at an abstract company, attorneys office, and bank or perhaps in your home. Once you have signed all the relevant documents you may receive your loan funds. You might want to bear in mind that the closing costs, debt payoffs may be deducted first from the total amount of your loan.

Generally, applying for a second mortgage is not very different from applying for your first mortgage. There may be several difference and perhaps stricter guidelines or higher interest rates but if you know how to shop around for the best offers you might end up with a good second mortgage deal.

by: Ask Bill

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