The home purchasing process is incredibly meticulous, and will require your complete focus. Not only can it be a long-winded procedure, but there may also be things to do after it wraps up. One of the areas of this process that will inevitably be challenging to navigate is the mortgage.
A majority of homeowners will often have to determine a number of factors relating to this critical loan. In some instances, they may have to even take out a second mortgage. Although it may not be necessary for your needs, it is something to consider.
Here are the six easiest ways on how to take out a second mortgage:
1. Second mortgage research
In the most basic terms, a mortgage is a legalized agreement between a lender and a potential homeowner. The homeowner takes out this loan at a given interest rate, and works to pay it off in subsequent years. Sometimes, however, a homeowner may default on their loan, due to the inability to make payments.
Before a lender seizes control of the home, you may have the option of taking out another mortgage. This second mortgage is essentially an additional loan taken out on a property that is already mortgaged. Lenders recognize this as extra risky, but may grant one in favourable scenarios.
2. Equity usage
When it boils down to it, your home’s equity can be put to good use. However, it isn’t an asset that can be used for your common expenses that cash would usually cover. Taking out a second mortgage, when given the permission to do so, allows you to utilize your home’s equity. Of course, this comes with several prerequisites to check off.
For instance, the type of lender you go with will usually have varying requirements to work with. In most situations, lenders will only allow you to take a portion out on your home’s built up equity. This can be calculated with a number of factors, such as using the remaining balance on your original mortgage.
3. Credit card debt
Don’t freak out just yet; some of the requirements of taking out a second mortgage are simple. They just require your financial affairs to be in somewhat good standing. For example, your credit card debt should be paid off as quickly as possible. Having multiple credit card accounts can be an impediment, if you’re planning to cut down on debt.
Moreover, there is another added benefit of cutting down on your credit card debt. Your credit rating will inevitably be raised as a result. When this rating is high and in good standing, your applicable interest rates will be lowered. Remember, lenders will only grant you a second mortgage if the attached risk is low!
4. Home equity loan
In order to take out a second mortgage, you’ll have to determine which type is amicable to your situation. There are two types of second mortgages that should be considered, the first of which is this one. A home equity loan allows one to take a lump sum payment from your established equity.
The provider of this type of second mortgage then gives you a percentage of this equity in cash. Of course, there are some caveats to taking out a home equity loan. The terms of agreement can range anywhere between five to thirty years. You’ll have to make sure to pay this loan back within that timeframe as a result.
5. HELOC
The other major type of second mortgage to consider taking out is a home equity line of credit. Colloquially known as a HELOC, this second mortgage differs from its home equity loan counterpart. Essentially, a HELOC works like how your usual credit card works. A lender first approves you for a line of credit.
This credit is based on the amount of equity you have stored in your home. You are then able to pull money from this line of credit. Lenders will only grant you a HELOC under certain timeframes, to which you’ll have to make your usual monthly payments.
6. Other considerations
After being granted a second mortgage, you still have multiple ways in which you can use it. You’ll want to consider using it to improve your home’s overall value, first and foremost. Ensure that the proper renovations are conducted using this loan, if need be.
To actually take out the second mortgage, you’ll have to get quotes from various sources. Always be sure to shop around at a local bank or mortgage broker. Online lenders may even offer you better interest rates than your usual establishments!
As is the case with any part of the home purchasing process, always prepare the necessary documentation. Being prepared before visiting a lender can greatly help your circumstances overall. Once you can convey your need for a second mortgage with confidence, each subsequent step becomes much easier!
