You’ve been paying your mortgage faithfully for quite some time which means you have now built up equity in your home. Your equity is the fair market value of your house minus what you still owe on your own. This equity can now be used as collateral to borrow against. Perhaps you need to remodel part of your home. Or pay tuition for one of your children. A common way to utilize the equity in your home is to take out a second mortgage.
What Is a Second Mortgage
A second mortgage is exactly how it sounds. It is a secondary mortgage on a property that is made while the original mortgage is still in effect. Second mortgages allow the borrower to borrow up to the amount f equity in a home, which is used as collateral. A second mortgage is subordinate to the first mortgage and thus is less secure. In the event of a default, all of the proceeds would go to the primary mortgage first.
For this reason, it might be difficult for some people to secure a second mortgage. Two popular types of second mortgages are home equity line of credit and home equity loans. The former is similar to a credit card and is good to use if you do not know how much a project is going to cost, the latter is a lump sum paid all at once, and good for things like construction projects to your home.
Who Qualifies for a Second Mortgage
A second mortgage is a higher risk loan for a lender thus there are different qualifications for a second mortgage. Borrowers must demonstrate their ability to make timely monthly payments in a consistent manner. A good credit score, usually one of 700 or higher, is also recommended for a second mortgage.
What is the Process to Apply for a Second Mortgage
In considering the second mortgage, the first steps you want to take are to gather your budgeting and financial information all in one place. The bank is going to need these items in order to process your application. If you have specific questions about what you will need, Nationwide Home Loans is always available to answer your questions. You will want to assess the fair market value of your home and have it appraised.
These values plus the amount you still owe on your mortgage will determine how much equity you have in your home and thus how much your second mortgage will be worth. Once you have all the information in one place, contact Nationwide Home Loans to make an appointment or speak with one of our professionals.
What are the Benefits of a Second Mortgage
Second mortgages are used for a variety of reasons. A second mortgage can be used to avoid having to take out a jumbo loan on a home. A second mortgage can also be used to avoid having to pay mortgage insurance on a primary loan. Second mortgages are excellent for one-time debt consolidation. Second mortgages are also an excellent source of funding for home repair and improvement projects--which in turn increases the value of your home.
Is a Second Mortgage Right for Me
Second Mortgages are a popular choice for securing a loan. If you are comfortable adding an extra bill to your monthly expenses and your income is sufficient, a second mortgage can be a sound financial decision for you. A second mortgage can enable you to consolidate your debt into a single monthly payment. A second mortgage can ensure you are able to make repairs on your home or add much-needed space to your home or even update a portion of your home that is lacking.
If you have considered all of your finances and choices, the best way to determine if a second mortgage is a right choice for you is to talk to a financial professional at Nationwide Home Loans. Someone is available to help you walk through the process and make the correct decision for you and your family.