Can I Get a Second Mortgage?

‘Can I get a second mortgage?’ is the question that a lot of struggling home owners are asking right now. A second mortgage is a loan that draws money from the equity that the home owner has in his house. The note he has had since he bought the property is the primary or the first mortgage. The second mortgage will be one that will have a higher interest rate than the first. To avoid the higher rates of interest home owners can take out a home equity line of credit (HELOC). There are a lot of reasons that a home owner may want a second loan. They may have decided to return to school and need money for educational expenses. They may want to update the house to more current styles. They may just need a vacation.

You can get a second mortgage by choosing one of the following types of loans. You can get a fixed rate of interest or an adjustable rate of interest note that gives you the equity amount in one lump sum. This can also be called a cash-out loan. You will pay the closing costs and other fees associated with taking out a new note. The HELOC is a type of revolving credit account that the home owner can withdraw money from and there are fewer costs associated with this type loan.

You must meet the qualifications of the lender before you are able to withdraw the equity from your home by either means. You will need to show that you have a good employment history and that you have earned income steadily for at least two years. The lender will prefer that you have been with the same employer, but it is not always mandatory. You will have to have the debt-to-income (DTI) ratio that the lender requires. This is a percentage representation of the amount of debt that you pay in relationship to the amount of income that you make. As a rule, the percentages required will be from 32% to 41% depending on each different lender. You can get a second mortgage if you have a good credit history. Jessica Bennet of Mortgage Fit says that banks will take a larger risk with second mortgages because the home owner must pay off the first note before the second one in the event the borrower defaults on the loan. Lenders are looking for home owner’s who have a credit report that does not show late payments or missed payments.

The final requirement is the amount of equity that you have in the home. You will be able to get a loan for up to 85% of the value of the home for a second note. If you take out a HELOC you can get up to 125% of the market value of the home. Here’s an example. You have a home valued at $100,000 and you have paid $50,000. Your equity is $50,000. You can get a second mortgage on this property for 85% of the market value, or $35,000.

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