How to Pass Through a Second Mortgage at Closing

Ensuring a smooth second mortgage closing requires diligent research.

A second mortgage is a secured home loan that is financed after a first mortgage. Second mortgages are often used for home improvements, cash out and credit consolidation. These loans normally carry higher interest rates than first mortgages. A smooth second mortgage closing requires a bit of pre-work and research on your part, the borrower.

Things You'll Need

• RESPA (Real Estate Settlement Procedures Act) documents
• All GFEs (Good Faith Estimates)
• Final loan terms

Instructions

1. Collect all correspondence between you and your lender during the loan process. This means the RESPA documents sent to you, the GFEs that your loan officer disclosed, and the final terms breakdown for your second mortgage. You may want to bring an unbiased third-party, such as a family accountant or lawyer, to help you review these documents.

2. Compare these documents side-by-side. Pay particular attention to changes in rates, fees and loan amounts. While a certain amount of change is common on second mortgages--underwriters often must adjust loan amounts and rates based on your income, credit and equity--these changes should have been covered by your loan officer.

3. Confirm any ancillary products on the mortgage. Most lenders offer payment protection insurance for mortgages. This is insurance that will pay the loan if you become unemployed or disabled. Make sure the policy is part of the final loan terms if you decided to take this out. On the other hand, make sure these policies are not on the loan if you opted not to take them. Remember that these are entirely optional.

4. Review the payments on the mortgage. If you are paying creditors directly through the loan, make sure these loans are marked for consolidation. Make sure the cash payment to you is correct. Contact your lender for these final terms if you do not have a copy already.

5. Double-check the final figures on your mortgage rate, APR (annual percentage rate), vendor fees (appraisal, title fee, title insurance), origination fees ("the cost of doing business") and discount fees, if applicable. This is essential. Your lender must review these final numbers and get your confirmation prior to closing.

6. Contact your lender if any discrepancies exist or if you're confused even in the slightest. A closing should simply be a review of what you've already agreed to, not a new negotiation of terms.

References

• Mortgage Loan: Compare Refinance Quotes
• Bankrate: Home Buyer's Guide: Closing
• Bankrate: If you have good credit, get your loan from the parent bank, not its subsidiary; Michael D. Larson