How to Qualify for a Second Home Mortgage
When it comes to consolidating debt and paying off high interest credit cards, many people look to use the equity in their homes. This process is known most commonly as obtaining a home equity loan of getting a second mortgage. A second mortgage works much like your first mortgage in that second mortgages are secured by a portion of your home's value and is a closed-end installment loan and not a revolving line of credit. The application process is also very similar.
Other People Are Reading
Things You'll Need
- Appraisal
- W2s for the past 2 years
- Tax returns for the past 2 years
- Bank statements
- Proof of homeowners insurance
- Funds for closing
Instructions
-
-
1
Have your home appraised. To qualify for a second mortgage, you have to owe less on your first mortgage than your home is worth. The difference between your home's value and the balance of your first mortgage is known as equity. This is the portion of your home's value that will secure your second mortgage. A certified real estate appraiser will be able to valuate your home and give you a basis for determining how much equity you have.
-
2
Calculate your equity. To determine equity, simply subtract the balance of your first mortgage from your appraised value. To qualify for a second mortgage, you must have equity in your home, however this amount isn't necessarily indicative of how much you can borrow. In many states, a second mortgage can actually exceed the total amount of your equity by 25 percent.
-
-
3
Meet underwriting guidelines and supply necessary financial documentation. One of the biggest hurdles to qualifying for a second mortgage is being able to meet the credit criteria. Although lenders have different qualifying criteria, most will require a credit score over 680, verifiable income documents such as a W2 or tax documents, your bank statements and proof of funds for closing costs. Expect to provide the necessary documents during the application process.
-
4
Provide proof of homeowner's insurance. To secure a second mortgage, you will need to provide proof of your homeowner's insurance policy. Because this is a requirement of your first mortgage, it should be simple to provide, but if you have allowed your insurance policy to lapse, you will need to obtain insurance and show proof of coverage before you will be approved.
-
1
