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9 Myths About Getting a Second Mortgage

If you want to take out a second mortgage, you'll find that there are quite a few myths about this option for homeowners.

There are a lot of myths surrounding the process of getting a second mortgage, and it’s important for you to separate fact from fiction. That way you can be more prepared, and you won’t be caught off guard. There are many reasons you might be getting a second mortgage. A lot of homeowners do that in order to make some improvements on the house, while others use it to go back to school, pay off other debts at higher interest rates, or even travel. No matter what you plan to do with the money, first you have to get through the process and understand what all is involved. Here are nine things to consider when you’re sorting through the myths about second mortgages.

1). I don’t need a new appraisal, right?

9 Myths About Getting a Second Mortgage

If you’re taking out a second mortgage, you’re going to need a new appraisal. The home must be worth what you already owe plus what you’re trying to borrow, or you’re not going to be able to get financed. Lenders understand that they have to make wise financial investments, and that’s not easy to do when a house isn’t worth what they’re lending. You’ll be asked to pay the appraisal fee, as well.

2). Why won’t my past payments help?

If you’re never made a late payment on your mortgage, and you’ve had that mortgage for a while, that can go a long way toward helping you get qualified for a second mortgage. It shows a history of paying for your house in a responsible manner, which any lender providing you with money wants to see. That way, they view you as less risky of a borrower.

3). The improvements I made won’t help, will they?

When you’re choosing a second mortgage, the value of your house is important. If you’ve made a lot of improvements, be sure that the appraiser and the lender are aware of these. Sometimes, that can significantly affect the value of the home you’re trying to borrow against, and raise its value enough that you’ll be able to get approved for the second mortgage you’re hoping for.

4). A home inspection isn’t necessary, right?

9 Myths About Getting a Second Mortgage

Home inspections are generally for the buyer when they purchase a house, so they know what they’re getting into and if there are serious problems with the home. You don’t need to have an inspection if you’re already living in the house, as the appraisal should be enough to satisfy the lender as to the value and the condition of the house.

5). Why do I need to go through the same lender?

If you’re deciding to take out another mortgage, you can work with any lender you like. Most lenders would prefer not to have a first and second mortgage on the same property, but it does sometimes happen. If you want to work with your lender on the issue there’s no reason not to, but you might have better luck by checking around for other lenders who can help you secure your second mortgage.

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6). Why does how much I want to borrow matter?

The amount you want to borrow matters, of course. If you’re looking for a small second mortgage you’re more likely to be approved. That will generally happen because there’s simply less risk in loaning you a smaller amount of money. You may also have plenty of equity in your home to get a small loan, and not enough to get a much larger one. Your lender can advise you as to whether what you want to borrow is realistic.

7). Will your interest rate be higher?

If you’re not comfortable with the lender you’re working with, you may want to start exploring other options, so you can get a second mortgage to do the things you want to do. Even if you’ve started the process with one lender, or gotten partway through that process, you still have the right to make a change. In some cases, switching lenders is by far the better choice, based on interest rates, fees, communication, and other factors.

8). Is a different kind of financial information needed?

9 Myths About Getting a Second Mortgage

Since a second mortgage is still a mortgage, you can expect to provide the same type of financial information you provided for your first mortgage. Generally, your lender will want to know how much money you make, and what debts you have. Your income and expenses are both vital to being able to qualify for the second mortgage. It’s not just about whether your house has enough value for the mortgage. It’s also about whether you can comfortably make the new payment on top of your other obligations.

9). My credit doesn’t really matter that much anymore, right?

Your credit always matters when you’re trying to get a loan. Even if you’ve paid your first mortgage on time consistently, you could still have trouble getting financed if you don’t pay your other bills promptly. Late payments and other issues on your credit report could be a red flag to a lender. They could also drive your credit score down enough that you won’t be able to qualify for the loan. It’s very important that you keep your credit score as high as possible, and that you work to correct any credit problems or mistakes on your report. Then you can have the best chance of being approved for your second mortgage loan.

2 Point Highlight

There are a lot of myths surrounding the process of getting a second mortgage, and it’s important for you to separate fact from fiction.

If you’re not comfortable with the lender you’re working with, you may want to start exploring other options, so you can get a second mortgage to do the things you want to do.

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posted on: April 20, 2016
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