Some people looking to buy a second home for either their own leisure or to possibly resell in the future will look into mortgaging that home as well. Many wonder if this is even possible, can you pull out a new mortgage for another home? The answer is yes, you can. However, there are a few things to understand.
Second Homes and Mortgages
When getting any loan, including a mortgage, the lender will calculate your credit score and will also look at your debt. If you already have a mortgage on one home, keep in mind that every dollar owed on that mortgage counts towards you being in debt. This debt ratio weighs heavily in the lender’s calculations. What that means is, even if you can handle the payments of this mortgage perfectly fine, the interest rate will be considerably higher.
If the interest rate and payment plan is manageable and beneficial for your plans, then by all means look into getting that mortgage and the second home. It is difficult for most people to be able to do something like this due to the high costs of mortgages, but some people can definitely handle it.
Another possibility is to use the equity on your current home instead. If you own a good chunk of the equity on your current home, you should consider looking into a home equity loan or line of credit. These forms of loans against the home are essentially a 2nd mortgage on your first home and the interest rates are fairly low. This is a much advised option if you have ownership of a good amount of equity in your home.
Buying a second home and mortgaging it in addition to your first mortgage is definitely possible. But, especially in this case, it is extremely important to look into all options available since it gets trickier the second time around and the interest rates are bound to be higher. Still, over 30 percent of home purchases over the last three years have been second homes, so it can certainly be done.
By: Sergio Haros
Posts Tagged ‘Loans’
Getting a Second Mortgage Loan in California
November 22nd, 2009
Second mortgages can be great sources of money for home improvements, but they come at a price. A second mortgage uses your home as collateral, so, if you default on payments, your lender can seize your home as repayment. It’s just as important to give as much consideration to your second mortgage as you did your first. Making mistakes can be very costly. This article discusses the three most expensive mistakes that people make with a second mortgage loan in California and offers advice on how to avoid them:
Basing the Mortgage on Equity
Some lenders will be willing to base the amount of your loan on the amount of equity you have in your home rather than your ability to repay it. This can cause missed payments, defaulted loans, and possibly even loss of your home. Always make sure that you will be able to afford the combined payments on both your first and second mortgages.
Ignoring the Repayment Schedule
Some lenders will only require you to make monthly payments on the interest of your second mortgage. At the end of the loan, the borrower is then responsible for a balloon payment—the entire amount originally borrowed. Unaware borrowers then have to refinance that original principal amount and pay interest on it for an additional term.
Not Comparing Lenders
It easy to go with a lender you know, possibly even the lender who financed your first mortgage. However, it’s always best to get several quotes from different companies in order to ensure you’re getting the best interest rate. A higher interest rate could cost you thousands of dollars over the life of the loan.
By: J. Hale
Consolidate Debts With A Second Mortgage
November 2nd, 2009
Who isn’t dealing with some level of debt these days? In fact, many people are trapped under a mountain of debt and searching for a way to pay it off. Since much of this debt is divided up among several sources, each with different interest rates and associated fees that are adding to the overall debt load. One way that these situations are being addressed is through debt consolidation. If you are a homeowner then you may have an advantage when it comes to obtaining a viable debt consolidation loan.
One of the more popular debt consolidation methods that you can use as a longtime homeowner is to apply for a second mortgage on your house. How does this work? What are the advantages and disadvantages using a second mortgage to consolidate debt?
You can choose from a fixed rate mortgage or an adjustable rate mortgage when you are taking on that second mortgage. Functioning like a home equity loan, if you have a second mortgage you will add cost to your existing loan’s payments each month. This is a serious decision with clear consequences. Don’t be in a hurry to take on another mortgage when you cannot real afford it.
If you believe that a second mortgage is a viable option for debt consolidation, you need to find the best deal you can. Timing can be a decisive factor since you will be able to get better loans for real estate when the interest rates are lower. Once you have secured a second mortgage, you can the money from the loan to pay off all of your outstanding debts and combine them into a single lower interest payment.
With most of these loans, you will be able to borrow about 80% of your home’s original cost at the most. If you keep this fact in mind you will be able to approach your debt consolidation plan in a clear and simple manner. The goal is not increase your debt but to eliminate all of the varied rates and fees linked to each source of debt by using the funds from your second mortgage to bring all of them together. There is much to be gained from consolidating debt using a home equity loan or second mortgage.
Use the second mortgage to your credit advantage. It can be an easy thing to let your debt damage your credit rating. This makes any other form of debt consolidation loan much harder to obtain. Second mortgages can be used in conjunction with collateral to alleviate this problem. (Most of the time, the collateral is the house.)
Using your home equity as a method of debt consolidation is not always the best option, but in some cases, it could be the most feasible option you have. It pays to look into the subject in more detail. Research debt consolidation on the web and do a search for ’second mortgage debt consolidation’ and see what results come up. You might be surprised at the volume of information that you is available to help you make the best decision regarding your personal debt circumstances.
By: Joseph Kenny