-
Step 1
The first step is to find a lender. There are many options out there for second mortgages. They range anywhere from national banks to fly by night mortgage brokers. The important thing to know is who is going to ultimately be holding your loan and what are that bank's qualifications? Secondarily, find out what fees are charged for the services and what interest rates are offered.
-
Step 2
Select three or four lenders offering the best program--lowest fees and lowest interest rates. Get official quotes from these. It will require a credit check and income verification. Do not give anyone your social security number until you get to this phase of the project. Once you have the official quotes, you can make a decision on a lender. This may require bartering in order to get the best lender at the best rate. Often the better lender will protect a quote from a questionable one.
-
Step 3
Second mortgage rates go up depending on the percentage of your home equity that you are taking out. For example, if your first mortgage has a balance of $200,000 and your home is worth $300,000, you have $100,000 available. If you take out $50,000 of your equity as your second mortgage, your total balance is $250,000 or about 83%. In order to get the best rates you should stay under 70%, but most lenders will allow you to take up to 100% under certain conditions.
-
Step 4
Income verification is important to a second mortgage because there is a higher risk involved. Lenders have a guideline for how much credit to debt you have. They call this your credit/debt ratio. A credit report is required in order to verify your debt.
-
Step 5
In addition to verifying debt, the bank will run your credit in order to check your credit rating. A higher credit rating may be required in order to take out a 2nd mortgage because the risk is higher. Due to higher risk, a lower credit score may also result in higher second mortgage rates.
