What You Should Know to Find a Second Mortgage Lender
For many homeowners, looking into taking out a second home loan can easily become a confusing and overwhelming experience.
Here at AdvisoryHQ, we’ve noticed an overwhelming trend of homeowners entering into the process of taking out a second home loan and refinancing a second mortgage without a clear future plan or idea.
Image Source: Buying a Second Home
In order to assist homeowners everywhere, we’ve compiled a comprehensive guideline for their questions regarding second mortgage lenders, how to buy a second home, and how to refinance a second mortgage. We’ll provide homeowners with detailed answers to some of their most asked questions, such as:
- Can I afford a second home?
- How to buy a second home?
- How to refinance my mortgage?
- What do second mortgage lenders look for in applicants?
Whether you’re a homeowner who’s looking to take out a second home loan on your first home or a homeowner asking yourself, “Can I afford a second home?” this guideline will help to answer all of your basic questions and concerns.
With so much varying information on the Internet surrounding second mortgage lenders, how to refinance a second mortgage, and how to buy a second home, our goal is to leave homeowners informed before embarking on the second home loan process.
Everything You Need To Know about a Second Home Loan
In order for you as a homeowner to make the right decision about how to buy a second home, you must first know exactly what a second home loan is. In the simplest of terms, a second home loan is just another loan that you take out on your home. If you’ve wondered, “Can I afford a second home?” or “Why would I even want to refinance my mortgage?” then you’ll be interested to know that a second home loan can be taken out for a variety of different reasons.
Some reasons might include help covering some of the finances with the original home loan, paying off home improvements or repairs, paying off large debts, or looking into financing a second home.
So if you’ve been contemplating on how to buy a second home, then looking into taking out a second home loan may ultimately be the way to go.
Two Types of Second Home Loans
As far as the second home loan goes, there are two main types that each homeowner will want to look into: home equity loans and home equity lines of credit. With a home equity loan, the second mortgage lender that you decide to go with will give you a large sum of money all at once, using your home as collateral. It is then up to you as the homeowner to pay off the second home loan, in intervals, over a set period of time.
With a home equity line of credit loan, the second mortgage lenders will provide you with a line of credit that you can use as needed. A home equity line of credit loan can be compared to a credit card, where you have the available funds, when and if they are needed, but you do not have to feel obligated to spend over what you need.
All-in-One Change Management Tools
Top Rated Toolkit for Change Managers.
Get Your Change Management Tool Today...
Disadvantages of a Second Home Loan
Before diving head first into taking out a second home loan and contacting second mortgage lenders, it is important to be aware of many of the downsides associated with financing a second home. One of the biggest disadvantages a homeowner should be aware of before contacting second mortgage lenders is that a second home loan can put them at a risk of losing their home.
When you tell the second mortgage lender, “I want to take out a second home loan,” ultimately, you are allowing them to place your home as collateral. If you are unable to pay back the second mortgage lender or you default on the payments, then your home will be foreclosed. If you do choose to go about taking out a second loan so that you can begin financing a second home, then you must be aware of this very important aspect.
Another major downside to taking out a second home loan is the incredibly high interest rates and fees. Like your original home loan, your second home loan will come with origination fees, appraisal fees, and closing costs that are sometimes 3–6 percent of the total loan amount.
If your credit score is not great, then be prepared to deal with high interest rates while attempting to get a second home loan.
However, many of these disadvantages can be completely avoided if you choose to refinance a second mortgage. Refinancing a second mortgage can help lower your interest rates, decrease your monthly payments, and do away with private mortgage insurance. We’ll get into more detail below about how you can go about refinancing a second mortgage after you have already been approved for a second home loan from a second mortgage lender.
How to Buy a Second Home
After looking into what financing a second home entails, you may begin to ask yourself, “Can I afford a second home?” Figuring out the best way on how to buy a second home is all tied into the process of financing a second home. For those of you looking to find out how to buy a second home, this section will help you figure out the most proactive measures to take.
You’ll be pleased to know that now is one of the best times to look into purchasing a second home. As far as interest rates go, taking out a second home loan has never been more affordable. So, when answer your original question, “Can I afford a second home?” the answer most likely is a yes!
The first step toward working on how to buy a second home is to start looking into the market. You may want to look into hiring a real estate agent to help you with working toward how to buy a second home. Your real estate agent may help you find property that will increase in value and make financing a second home monetarily worth it in the end.
Image Source: Top Second Mortgage Lenders
Next, you’ll want to take any possible insurance claims into consideration. This is especially important to consider if you happen to look into buying your second home in an area where natural disasters may incur damage. Insurance companies are much more reluctant to provide second home loan owners with insurance as they deem that second homes are not always maintained as well as a primary home.
Finally, the last step on how to buy a second home is to get approved for a second home loan. These days, getting approved by second mortgage lenders for a second home loan is rather easy. This is especially true if you already have a positive relationship with your original mortgage lender. Your original mortgage lender can then become your second mortgage lender, making the entire loan application process much easier for you.
What Second Mortgage Lenders Look for in Applicants
Once you’ve finally answered the question, “Can I afford a second home?” with an affirmative yes, you can then finally begin the second home loan application process. In order to best improve your chances of getting approved by the second mortgage lenders of your choice, knowing what the second mortgage lenders will look for is of the utmost importance. To get approved for a second home loan, you must be prepared to have second mortgage lenders look into very specific areas of your funds and assets to get a better idea of your financial situation and ability to pay off the loan.
- assets and capital
- employment history
- debt-to-income ratio
- credit score
The first aspect that second mortgage lenders will look into will be your assets and capital. Second mortgage lenders want to know how much money you have available to pay off your new loan. The amount of money that you have will determine whether or not they approve you for a second home loan. A good piece of advice for the homeowner looking into financing a second home is to have at least six months’ worth of funds in your personal assets in order to pay off the second home loan, even if you run into a financial crisis.
Next, second mortgage lenders will want to see stability in your employment history. Paying off a second home loan is a big financial responsibility, and second mortgage lenders will want to be sure that you have a stable income coming in.
Your second mortgage lender will also take a look into your personal debt and compare it to your various sources of income. Your debt-to-income ratio is the amount of monthly debts that you have. Your second mortgage lender will add up all of your debts to estimate a monthly amount and then subtract that from your gross monthly income. In order to be approved for a second home loan, your debt-to-income ratio must be low.
Finally, your credit score is one of the most important aspects that will determine whether your second mortgage lenders approve you for financing your second home. Unlike a primary loan, for a second home loan, second mortgage lenders expect your credit score to be exceptionally high. Staying on top of all of your payments and clearing out any debt is a great way to improve your credit score before starting on the second home loan applications.
How to Find a Second Mortgage Lender
Although it may be convenient to look into your primary mortgage lender as a possible second mortgage lender for a second home loan, you don’t necessarily have to stick with them. Shopping around for different second mortgage lenders is a great way to compare quotes, rate fees, and interest rates.
Quicken Loans is a great way to compare the rates of many different second mortgage lenders. Quicken Loans will ask you to plug in some information and then use it find the best rates of second mortgage lenders that participate with Quicken.
Wells Fargo is another viable option for homeowners looking into financing a second home. Wells Fargo is an especially great option for applicants with altering credit scores.
Keep in mind, when looking for a second mortgage lender, to actively ask about rate fees, interest, and whether or not the second mortgage lender requires a closing cost. Keep track of each second mortgage lender’s offers and compare them all to find the best overall price. The second mortgage lender that you end up deciding to take out a second home loan with should be your personal preference, based on the best rate you were offered.
How to Refinance My Mortgage
Once you’ve figured out how to buy a second home, find the best-priced second home loan, and finally get approved for a second home loan by a second mortgage lender, you’ll want to look into refinancing a second mortgage. Refinancing a second mortgage is one of the most important financial decisions you make regarding your second home loan. Many of the disadvantages of taking out a second home loan can be completely eradicated by making the sound decision to refinance a second mortgage.
If you’re still left wondering, “Why should I refinance my mortgage?” then allow us to clear up any confusion or misgivings you may have.
Refinancing a second mortgage can significantly drop your original interest rates and even help to lower your monthly payments to a more reasonable cost.
The process of refinancing a second mortgage is quite similar to the original process of financing a second home. You’ll want to make sure that your credit score is in good shape and that you have been making consistent payments on your second home loan. Having a good credit score will greatly affect how low of an interest rate you could be eligible for.
Next, you’ll want to find a second mortgage lender that will give you the best rate on your refinancing a second mortgage. Finding a second mortgage lender to refinance with will depend on the best rate that you can find. You can begin by going to your original second mortgage lender and asking them what their best offer is and if you can avoid a closing fee.
Take note that just like your second home loan, you do not have to feel obligated to stick with your second home mortgage lender if they do not offer you the best terms. Instead, feel free to shop around for different second mortgage lenders in order to compare and see who has the best interest rate option.
After you’ve made the decision to refinance a second mortgage with the second mortgage lender of your choice, simply fill out all of the necessary paperwork and read over the fine print to be sure that the contract entails everything that you agreed upon.
Conclusion: How to Buy a Home and Find a Second Mortgage Lender
As you have seen, looking into the process of how to buy a second home is much easier than you may have previously expected. With interest rates at an incredible low, now is one of the best times to look into taking out a second home loan.
The process of finding a second mortgage lender involves a bit of legwork as you compare prices and offers to find the best deal available to you. Much of the downsides associated with a second home loan can also be avoided by simply refinancing a second mortgage in order to get a lower interest rate and lower monthly payments.
With all of this information made available to you in a simple and easy-to-understand format, you as a homeowner can finally feel confident about looking into financing a second home and finding the best second mortgage lender for your second home.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.