Prepare To Apply For A Second Mortgage
Maybe you have suddenly found yourself in the middle of a family emergency that requires a lot of cash. Maybe you want to go on your second honeymoon or buy a vacation house on the beach. No matter what your reason is, you are looking into obtaining a new home mortgage. A second mortgage may sound like a risky thing but it is really common in this day and age. In fact, most of the homes out there have not just one, but two mortgages on them. It is so common that most people expect that homes already have two mortgages. Some even start out with two mortgages from the moment they bought the house.
Before you jump the gun though and head straight for the home mortgage application, there are a few things that you want to review and get straight before you make your intentions known to any banks or lenders. The first thing you want to do is to check your credit score. You are legally entitled to one free credit report every year from each one of the major credit agencies. You can request a paper copy to be mailed to your home or you are have instant access to your credit report by using the Internet.
Once you pull your credit, make sure that you are looking for errors. It could be as big as identity fraud or as small as someone forget to report that you paid off the last hundred dollars of your department store charge card. Even if you find a very tiny mistake or oversight on your credit report, you are going to want that fixed. You want to make sure that your credit report is as perfect as possible before you even approach a bank or lender for a second mortgage.
The next thing you want to check is your debt to income ratio. You can easily use an online mortgage calculator to determine what monthly payments you would be looking at for your new home mortgage. There are eve debt to income ratio calculators online that you can use. This will give you an understanding of what the bank will see when they look at your application for a second mortgage. If you find that you need to improve your debt to income ratio, the time to do it is before you apply for the loan.
Try to increase your income if at all possible. While you are trying to do that, you can also work on decreasing the amount of debt you have. Pay off or at least pay down some of your credit cards. Get rid of the cable television if you have to. Do whatever you have to do to improve your debt to income ratio so that when the bank looks at your application, they will not want to automatically deny your loan. You want to show them that you are able to repay the money. If you are unable to prove this to them or convince them that you can do it, you might as well forget about getting the second mortgage.
If the loan amount that you are seeking is not a lot of money, say, $5,000 for example, you would be best to refinance your current mortgage into a slightly larger amount, taking out cash back. This is better than adding a second mortgage. A second mortgage is typically a high interest rate, even when someone has good credit. This is because second mortgages generally miss out on the money if the home goes into foreclosure. Moreover, instead of paying two different interest rates you could just pay one.
Some people find though that the refinance will not work for them or they would just prefer a second mortgage, which is completely fine. Some people just like the idea of the small second mortgage because they intend to quickly pay if off sop that they are once again, just left with their first home mortgage. If you are able to do this, than that is a great thing because too much debt is never a good thing.
Whatever route you decide to take, just make sure that you are shopping around for various home mortgage interest rates before making your final decision. You want to have the various mortgage companies fighting for your business. When this happens, you are sure to get the best deal possible. If you are worried about the process getting a little confusing, you could always have a broker see what options are out there for you. The broker just might know of a few companies that would be perfect for you and your financial situation and credit score. It might even be better than what you could have found searching on your own for loans.
Another good thing to be careful of is balloon loans or adjustable rate mortgages. Even if you have the best intentions to pay off the second mortgage soon, you just never know what could happen in life that would prevent you from doing that. You do not want to find yourself stuck in a position of having your home foreclosed on because you could not afford the increased payments. The sooner you get started, the sooner you will have your home mortgage approved. You will have the cash you need to remodel the house, go on vacation, or send your oldest off to college.