How to Make a Home Affordable by Applying for a Second Mortgage
Financial hardship makes paying a first and second mortgage difficult. To relieve the financial stress, many families consider refinancing the first and second mortgage into a single home loan. The property, however, must have enough equity to secure the new loan. Understanding the qualifying criteria and options to lower payments, such as a loan modification, can assist during difficult financial times.
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Instructions
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Find the current value of your home. Check out tools such as Zillow (see Resources) to find the estimated value of your home. For example, after inputting your address into Zillow, it returns a value of $200,000. If the first and second mortgages, combined, don't exceed this amount, you can refinance into a single mortgage loan.
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Contact your existing lender to request a refinance. The benefit of refinancing with an existing lender is reduced closing costs. Lenders are motivated to keep your business. For this reason, the company may offer reduced or no-cost refinances.
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Provide the required information. The lender might need current information, such as pay stubs and financial statements, to process your application. Provide the requested information quickly to keep the loan moving forward.
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Set up an appraisal. Most lenders will require a property appraisal, which costs about $400. If the appraised home value is more than the outstanding loans (total of the first and second mortgages) you should be in good shape. For example, if the value of the first mortgage is $150,000 and the value of the second mortgage is $15,000, this totals $165,000. If the appraised value is $200,000, you shouldn't have difficulty securing a single loan on the property.
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Sign the loan documents. After the lender has approved the loan, she will set up a date to sign documents. Check the mortgage interest rate and loan term to ensure accuracy. Once documents are signed, the old loans are usually paid off within three business days.
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Tips & Warnings
If you don't have enough equity to combine the first and second mortgages, ask your existing lender about loan modification programs. With these programs, your payment is reduced for a period of time, such as 20 months. Total debt, such as credit card payments, mortgages and other obligations, must be at least 55 percent of monthly income to qualify.
Continue making payments on your first and second mortgage until you have confirmed the new loan has funded. This will protect your credit score.
References
Resources
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