Category: Mortgage

Second Mortgages

Second Mortgages2020 was a financially sound year for homeowners since the home equity has an average gain of $26,300 last year. According to Corelogic, an average homeowner has more than $200,000 in equity.

The pandemic brings in unprecedented financial difficulties, during which time you may need access to a large amount of money. Consider tapping into the equity and take out a second mortgage.

This article walks you through the inside workings of second mortgages, closing costs, interest rates, pros and cons, qualifications, requirements, the application process, and much more.

How Does a Second Mortgage Work?

The second mortgage is a loan similar to the one used to purchase your home. The reason it’s called a 2nd mortgage is that it is next in line to be repaid after your purchase loan.

Since it uses your home as collateral, the second mortgage lender can repossess your home if you fail to repay. In that case, the loan used to purchase your home is the first one to be repaid. The remaining, if any, will go towards the second mortgage.

Second mortgages tap into your home’s equity, which is the current market value of your home minus the loan balance. In most cases, lenders would let you borrow 85% of the home equity, depending on your credit score.

And, since the second mortgage loan is taken against your home, it has a lesser interest rate than other loans such as personal loans or credit cards. Depending on your choice of loan, it can either be a fixed rate or variable rate.

Types of Second Mortgages

The common types of second mortgages are:

  • Home Loans: The lender gives you a lump sum where you get the entirety of the loan amount to use as you wish. The loan is then repaid in fixed monthly payments. Generally, they come with a fixed interest rate and a fixed term.
  • Equity Lines of Credit: The lender gives you a line of credit from where you draw a certain amount of money as and when you wish, just like a credit card. Line of credit usually comes with adjustable rates.

Since they are secured against your home, they are cheaper than most loans but not as much as the first mortgage.

Is a 2nd Mortgage a Good Idea?

Second mortgages can be a great source of money when you require a lump sum at a reasonable rate of interest. They are a good idea when used for things that have long-term value.

Most people take out a second mortgage for things that have a long-term value, such as:

  • Home Improvements – You can proceed with home improvements such as a kitchen remodel or bathroom renovation, etc.
  • Debt Consolidation – The loan gives you the chance to pay off high-interest loans such as student loans, credit cards, etc.

However, it is not advisable to use it for inconsequential things that do not add value.

Closing Costs on Second Mortgages

As with the primary mortgage, the second mortgage also has closing costs, though reasonably reduced. Even then, it amounts to 5-6% of the loan amount.

For loans up to $200,000, the lenders charge a “flag” title insurance policy with a flat fee of $125 and a sub-escrow fee which is $225 -$250.

Additionally, the standard fees such as the recording fees, notary fees, and the payoff fees amount to $60-$150. And then, there are the administrative fees charged by the lenders that come to $250.

Apart from that, you may have to pay an additional cost of $300 – $400 if an appraisal is required. Finally, the credit fees come to $15 – $30.

How Much Home Equity Do You Need for a Second Mortgage?

Though equity requirements vary, second mortgage lenders prefer that you have a 15% – 20% equity in your home.

You can borrow up to 85% of the home’s equity, which is 85% of your home’s value – any loan balances. For example, consider your home’s worth to be $300,000 and loan balance $200,000.

85% of $300,000 = $240,000.

2nd mortgage would be $240,000 – $200,000 = $40,000.

Does a Second Mortgage Have Any Tax Benefits?

The tax benefits primarily depend on the kind of debt.

When your second mortgage is used to buy, build or improve a primary/second home, it becomes a home acquisition loan. If the home acquisition debt and the home equity debt combined together come up to $1.1 million, you could deduct all your interest in that particular year.

However, if the home acquisition loan is $2,000,000, you’ll be able to deduct only half of the total interest paid that year.

Can You Get a Second Mortgage to Buy Another House?

Yes! You can use a second mortgage to buy another house. Tapping into the home equity allows you to enjoy better rates of interest and tap into the financial resources that lay untouched otherwise.

If your second home is an investment property, home equity is often the least expensive option since they have lower interest rates.

Are Second Mortgage Rates Higher than First Mortgage Rates?

Second mortgages have higher interest rates than the first mortgage. This poses a risk to the lenders since they are second-in-line to be paid in case of foreclosure.

However, a second mortgage has lower interest rates than other unsecured loans such as personal loans and credit cards.

How Much Does It Cost to Get a Second Mortgage?

Second mortgages cost 2%-5% of the mortgage amount both in upfront costs and those that are paid over a period of time. Most of these are similar to that of the primary mortgage but are paid separately since they are considered to be separate loans.

Pros and Cons of Second Mortgages

Second mortgages, as with every other loan, come with their own pros and cons. Talk with your lender and consider the risks to make sure the second mortgage loan is the right one for you.

Pros of a Second Mortgage

Lump-Sum: Second mortgages allow you to borrow a significant amount of money. Since the loan is secured by your home, you would be able to borrow much more than unsecured loans.

Lower Interest Rate: Second mortgages have lower interest rates than other loans since they use real estate as collateral which reduces the risk to the lender.

Tax Benefits: In certain cases, the interest accrued will be eligible for tax benefits. According to the Tax Cuts and Jobs Act, you’ll be able to claim deductions if used for home improvements.

No Limits: Second mortgages give you the freedom to use the mortgage amount as you wish. You can use it for big purchases you wouldn’t be able to afford otherwise.

Cons of a Second Mortgage

Risk of Foreclosure: Since the loan uses your home as collateral, you run the risk of foreclosure if you fail to pay it back.

Closing Costs: Second mortgages can be expensive, much like your primary mortgage. The closing costs can end up in thousands of dollars in origination fees, appraisals, credit checks, and more.

Interest Rate: Though the rate of interest is much lesser than your credit card, it is higher than your purchase loan.

Undue Pressure on Your Budget: A second mortgage adds to your debt burden even with your low-interest rate. It can place pressure on your budget, especially if you are living paycheck to paycheck.

Requirements for Second Mortgage

To qualify for a second mortgage in the form of a home equity loan or HELOC, you’ll need:

  • A credit score of 620
  • A debt-to-income ratio of 43%
  • A decent amount of equity

Below is the paperwork your lender will require before closing the loan:

  • Copy of the deed to the property
  • Tax appraisal
  • W-2 (last 2 years)
  • Tax returns (last 2 years)
  • Paystub (current)
  • Proof of income (child alimony, disability payments, child support, lawsuit settlement, inheritance, and other sources of income)
  • Copies of bank statements (3-6 months)
  • Open credit accounts
  • Current loan statement
  • Homeowners insurance

Apply for a Second Mortgage

In terms of getting a second mortgage, the application process is similar to a primary mortgage; you do not need any home appraisal or inspection. However, you may need an assessment to determine the current value of your home.

To start with, talk with your lender to check if you are eligible for other financing options, including refinancing.

Here’s the application process for the second mortgage.

  • Calculate the equity in your home and how much you can borrow.
  • Gather all the required documentation, preferably in digital format, to speed up the timeline.
  • Shop around different lenders for better rates. Compare the lenders and financing options for your situation.
  • Once you finalize the lender, make sure you fill out the application with the correct details, or it may delay the approval.
  • Fax or email the documentation to save time and expedite the process.
  • Letting the lender know the reason for the loan may help with the approval process.
  • Your lender may want to conduct an appraisal and inspection if it hasn’t been done in the last six months.
  • Review the disclosure documents and verify the payment terms.
  • Ensure that the terms of the loan match with what you have agreed to.

Piggyback Loans

Second Mortgages - Piggyback LoansPiggyback loans — also known as 80-10-10 loans — are an entirely different kind of second mortgage. Rather than borrowing against your home equity, you get a loan piggybacking the primary mortgage. In short, you’d be using two mortgages to purchase your home. The first mortgage typically covers 80% of the home price, and the second mortgage covers 10%. The remaining 10% is covered by your down payment.

It is generally used to cover parts of the down payment and avoid private mortgage insurance (PMI), as well as avoid taking a jumbo loan where the interest rates are significantly higher.

First Mortgage vs. Second Mortgage

Similar to a first mortgage, a second mortgage is also taken with your home as collateral.

The first mortgage is the primary loan that you take to purchase your home. The interest rates are significantly lower than many other loans. Additionally, they are also tax-deductible. However, the closing costs may be high and needs to be paid upfront.

The drawback is that you do not possess the ownership of the property until you pay back the loan. And defaulting on the monthly payment can lead to foreclosure, with the primary mortgage being paid first.

On the other hand, the second mortgage is taken on the home equity in addition to the primary mortgage. The rate of interest is high when compared to first but lower than the unsecured loans.

Second Mortgage vs. Home Equity Loan

Home equity loans are pretty similar to second mortgages that many confuse between the two. They are alike in every aspect, including that they use home equity to finance the loans. You’ll need to retain 20% home equity to qualify for both these loans.

The rate of interest is fixed so are the payment terms. You make a monthly payment, failing which you will face foreclosure. A home equity loan is available in a lump sum similar to the second mortgage.

Second Mortgage vs. Home Equity Line of Credit

Second Mortgages Versus Home Equity Lines of Credit (HELOC)A home equity line of credit (HELOC) is also quite similar to a second mortgage in that it is financed by home equity. It has a revolving credit line from where you can borrow money and then make monthly payments, just like your credit card.

A HELOC also has a draw period, say ten years, where you can borrow money. After the draw period comes the repayment period, during which time you have to pay it off. Once you have paid it back, you can use the money on your credit line repeatedly without applying for more home equity lines of credit.

Like the second mortgage and the home equity loan, your home is at risk of foreclosure if you miss monthly payments.

Conclusion

By taking out a second mortgage, you tap into the home equity to finance your home improvements, big purchases, and such. While it has its risks, the lower interest is an attraction.

You can use a second mortgage to make substantial improvements to your home, settle debts on loans that carry a higher interest rate. Like the purchase loan, it is taken against the real estate, which means that the first mortgages have priority when the borrower defaults.

You need not take out a second mortgage from the same lender as your primary loan. Shop around and find the lender who carries the best rates. Also, look around for other loans appropriate for your financial situation.

Priority Lending, LLC has been providing mortgage loans and helping people like you fulfill their dreams since 1997. Contact one of our loan officers today to get started on refinancing your mortgage.

What Is the Best Mortgage?

So what is the best mortgage? There are different types of home loans available for people looking to move into a new home. There are two main types of fixed-rate mortgages and adjustable-rate mortgages. Fixed-rate mortgages lock in your interest rate. Adjustable-rate mortgages have the possibility of increasing your interest paid over time.

If you’re looking for a new house, you will need to get a mortgage for the new property you plan on moving into. There are several types available to individuals. Applicants who meet specific criteria and requirements can apply for mortgages. One mortgage type may be suitable for someone. On the other hand, that doesn’t mean that the same mortgage set-up will work for you. For example, let’s look at variables such as:
 
  • Income
  • Marital status
  • Debt
  • Credit score
These play a huge role in determining whether you get approved for a mortgage.

What Is The Best Mortgage?

It’s essential to become educated about all of the various mortgage options out there so that you can secure your home for a long time to come. You should always consult with your realtor before closing a deal on any home as they will be able to give you advice that relates to your specific situation. Moreover, educating yourself will be time well spent.

However, a few general rules apply regardless of who you are in terms of mortgage configurations. Continue reading to find out about the various mortgage options available and how you can go about choosing the right one for you.

Types of mortgages

In this paragraph, we will look at the types of mortgage available. There are two primary types of home loan options; they are fixed-rate mortgages and adjustable-rate mortgages. Firstly, fixed-rate mortgages lock in your interest rate for life while secondly, adjustable-rate mortgage interest rates can change within any given year from the time that the loan was taken out. It all depends on whether you want to take the brunt of interest upfront. If you slightly delay it a bit, you will still be responsible for paying the higher interest rate if it rises so fixed-rate mortgages tend to be ideal.

Mortgages can be allocated in different lengths; this gives you the ability to choose how long you want to take to pay off your house fully. The most common mortgage lengths are 15yrs, 30yrs, and 50yrs. Keep in mind that the longer you take to pay your home off, the more interest you will pay. With this in mind, let’s look more in-depth.

Choosing the best mortgage for you

Above all, deciding on which mortgage type is right for you really boils down to your current financial situation. If you make an adequate amount of money each year but have some outstanding debts, you may want to go with a fixed-rate mortgage for the long-term. Alternatively, and most importantly, if you make decent money and have no debt obligations, you can opt for an adjustable-rate mortgage at a 15-year term. As a result, it would be beneficial to discuss all of this with your mortgage lender.

People Also Ask

Q: What type of home loan is best?

A: Generally speaking, non-conforming and other conforming mortgage set-ups are best because they require the lowest down payment for qualified first-time buyers.

Q: How do you know which mortgage is right for you?

A: You first need to find out how much house you can afford, by establishing this, you will be able to find the right home loan in no time.

Q: What is the best bank for a home loan?

A: All bans are different; however, some of the best banks to obtain a home loan through are available on request.

Conclusion

By now, you know about all of the various home loan types available. Before making a decision about which one is right for you, ask yourself these two simple questions: “Am I comfortable with the idea of possible paying more interest over time?” and “How fast do I want to pay off my house?”.

Please see our First Time Buyer page if this is going to be your first home purchase.

Investopedia has an awesome article on how to choose the best mortgage.

How to Get Approved for a Mortgage

Getting approved for a mortgage isn’t a complicated process. You need to make sure that you have all the proper documentation to increase your chances.
 
  • Check your credit score
  • Bring a nice down payment
  • Review any outstanding debts you have
  • Try to get pre-approved for a mortgage before going out to look at homes
 
If you’re moving from one existing home to another or are embarking on your very first home ownership adventure. The first thing you need to do before thinking about closing the deal and moving in getting approved. Mortgage approval requirements vary based on a lot of factors such as your pre-existing credit score, salary, marital status, and more.
 
You can get pre-approved for a mortgage by lenders before even stepping foot into a property. This is commonly known as pre-approval. By doing this, you will be able to gain a clear vision of what houses you can afford. And importantly, which ones you should avoid altogether.
 
Pre-approval isn’t the only way to get approved. Several programs are designed to help people secure a mortgage on their dream home regardless of their current financial status. To better understand what you can expect when trying to get a mortgage, we’re going to give you a detailed breakdown below.

How To Get Approved For A Mortgage

Getting approved for a mortgage

When you find the home you want, you will have to sit down with your real estate agent and whatever broker owns the property. This is where all of the mortgage approval happens, to begin the process, you need to bring a few essential documents with you.

Here are all of the things lenders look for when deciding whether you are approved for a mortgage.

Factors That Impact Your Odds Of Being Approved For A Mortgage

  • Total monthly income
  • Credit Report
  • Summary of All Your Current Monthly Debt Payments
  • Down Payment
  • Sensible Idea of How Much You Can Afford

Once you have all these pieces of information in order, you will be able to begin the process of applying for a mortgage.

Closing the deal

The final decision as to whether you’re approved or not lies in the hands of the lender. Some lenders take all of the factors we mentioned above into consideration when making their final decision, while others only consider a few of those variables. If you’re unsure about how likely you are to get approved for a particular mortgage, go online and look for a pre-approval program so you can get a clear picture of how much house you can afford.

People Also Ask

Q: How can I get approved quickly?

A: The best way to get approved for a mortgage reasonably quickly is by having a concrete understanding of your financial situation before going out to look for homes. Here are some tips you can use to secure a home mortgage loan pretty fast: establish a clear budget before looking for homes, know your credit score, have cash on hand, pay off any of your outstanding debts, and try to gain pre-approval status.

Q: How hard is it to get approved for a mortgage?

A: Getting approved for a mortgage is not difficult; however, it can be a complicated process depending on all of the factors impacting your specific situation.

Q: What credit score do you need to get approved for a mortgage?

A: FHA loans require that you have a minimum credit score of 500-580 depending on your down payment amount. For other mortgage types, the minimum score is about 620.

Conclusion

We’ve covered all of the important facts and information that you need to know about securing a home mortgage. Ask yourself these two questions before starting the process, “How much house can I reasonably afford?” and “What is my credit score?” These will help you increase your odds of getting approved for a mortgage.

Here is a great article from Investopedia.

You may also want to read our Prequalify For A Mortgage page.

Can you get a mortgage with no credit?

Can you get a mortgage with no credit?

Can you get a mortgage with no credit? If you want to buy a home but have a limited or nonexistent credit history, it can be difficult. You need to find a mortgage lender who will accept your application. Most lenders need applicants to have some sort of credit established. This can be through car loans, student loans, or such like.
Yet, FHA loans allow you to buy property without the need of having to show your credit score. You can use “non-traditional forms of credit”. For example, this can be proof of your rent payments, to apply for an FHA loan. For first time home buyers, finding a mortgage lender willing to get you in a home is no problem.
But, that’s because they need you to have a good credit score. Additionally, having good finances before you can get approved for a home loan is better. This may not be challenging to most. There are individuals who have a limited or completely empty credit profile. If you’re one of those people, the good news is that you can still buy a home with an affordable interest rate. Even with a low down payment. So, to get a mortgage without any prior credit history, you will have to apply for an FHA loan.
 
FHA loans are the best option for anyone interested in buying a home the first time but don’t have the credit to do so.
If you want to learn more about FHA loans, continue reading to find out all the critical details you need to know.
 

Is it possible to get a mortgage without credit?

Most lenders require that you show some proof of credit history when applying for a home for the first time. But, with FHA loans, you can get approved for a home. Show receipts that you’ve paid your rent on time or any other valid proof. Substantiate your claims of being financially responsible.
 
Keep in mind; even FHA loans have specific requirements. You must meet these to be eligible to receive the benefits of this specific loan type. For most standard mortgages, you must have a credit score of at least 600 or higher to qualify for financing. With an FHA loan, you need to show proof that you’ve paid your utility bills on time to qualify.
 
Here are some of the documents you can use to apply for and get approved for an FHA loan:
 
  • Car insurance payments
  • Rental payments
  • Utility payments
 
As long as you have one or a combination of these documents, you will be able to qualify for approval for an FHA loan. You can apply without needing an actual credit score.
 
How to get a mortgage with no credit
 
As we mentioned above, the only real way to get a mortgage without any credit is by using an FHA loan. When applying for an FHA loan there’s a rule. You must pay a monthly insurance premium alongside your mortgage payments.
 
Your monthly insurance premium rate will typically be in the .80%-1.05% range. Private mortgage insurance comes with conventional loan types. The MIP is no longer applicable once you reach 22% equity in your property. With FHA loans, your monthly insurance premium is mandatory for the entire life of the loan.
 
FHA loans also come with a minimum down payment requirements of 3.5%. Usually, traditional mortgages have a 5% down payment.

People Also Ask

Q: How can I get a home loan with no credit?

A: If you don’t have a strong credit profile but are interested in owning a home, you need to look into what is known as FHA mortgages. FHA mortgages are loans backed by the Federal Housing Administration, and they allow applicants to use non-traditional credit histories to apply for mortgage loans. An example of non-traditional credit history would be proof of non-delinquent renter’s payments.

Q: Do you have to have credit to get a mortgage?

A: While most lenders do require you to have some sort of verifiable credit history before applying for a loan, there are options available to people who may have a limited credit history or no credit at all.

Q: Can I buy a home with 0% down?

A: Yea, there are first time home buyers programs out there which enable you to purchase a home without paying any money at closing outside the traditional closing costs. There are other programs out there that offer deals for as little as 3% down on your home for qualified buyers.

Conclusion

We give you all of the important tips, facts, and information you need to know about trying to obtain a mortgage with no credit. Use this write-up to assist in applying for a home with no credit so that you can skip the hassle involved in applying for a traditional loan.

You may also find the First Time Home Buyers page helpful.

 

What Is Today’s Mortgage Rate?

What is today's mortgage rate?

Today’s mortgage rates are at a 10-year low across the entire real estate industry. If you’re looking to buy a new home, now is the time to do so as you will be able to find great deals on lavish properties with low-interest rates on standard 30-year fixed contracts. The average mortgage rate in today’s climate is about 3.38%-4.56%.

In today’s age, new homeowners are faced with many economic challenges that previous generations didn’t have to deal with. One of those challenges has to do with variables mortgage rates that isolate entire portions of the population from even being able to qualify for a home loan. Everything in the world is changing at a rapid pace, and the housing marketing is no different.

Depending on the type of house you buy and the length of your mortgage contract, your mortgage rate can vary substantially from let’s say someone you know or even someone that lives in the same neighborhood as you. There are other factors that impact your final mortgage rates, such as your credit score and credit history.

Below, we’re going to go over the average costs of today’s mortgage rates so that you can get a clear picture of how much you will pay when moving into a new home.

The average mortgage rate in today’s economy

Mortgage rates vary based upon several factors, as we previously mentioned. Some of these factors include the length of your mortgage contract, your credit history, and the type of mortgage you want to take out against your home.

There are five different types of mortgage options available which are:

  • Adjustable-rate mortgages
  • Conventional fixed-rate mortgages
  • VA mortgages
  • FHA mortgages
  • Jumbo mortgages

All of these mortgage types come with different contract obligations length, approval requirements, and mortgage rates. If you’re unsure about which mortgage type is best for you, consider talking to your real estate agent so you can get personalized advice about which mortgage type is right for you.

While each of these mortgage types does come with their own rate based upon the length of your contract, there is an average across the entire industry you can look at to see an estimate of how much you will pay for a home. The average rate for a 30-year fixed mortgage is about 3.38%-4.56%, and that applies for FHA, VA, Jumbo, and conventional mortgages.

There are special programs available that are designed to assist first time home buyers with getting great mortgage rates for their new property. You can also find some other specialized homeowner incentive programs that give you unique deals on mortgage rates when you meet specific qualifications.

How to get the best mortgage rate for your home

One of the best ways to get a low mortgage rate on your home is by cleaning up your credit report and ensuring that you maintain a high credit score. For mortgage lenders, an ideal credit score is about 740+ for those applying for single-family homes that will be their primary residence.

If you are interested in purchasing a property outside of a single-family home that will be designated as your primary residence, you will want to speak with your realtor and finance company to see what requirements you must meet and what the average mortgage rates are for your individual situation.

Regardless of what kind of house you are looking to get into, mortgage rates across the board are down at a 10-year low across the board, so you’ll be able to find a deal on a beautiful home with no problem. One last thing you should remember is that you want to choose a mortgage rate that is compatible with your ultimate financial goals.

People Also Ask

Q: Are mortgage rates lower today?

A: When generally speaking, yes. Today’s mortgage rates are, on average, .03% lower than average fixed mortgage rate for 30-year loans in previous years. This is good news for any homeowner that is looking to purchase their first property right now as you can find tons of deals on great-looking properties that are affordable.

Q: What is the lowest mortgage rate ever?

A: The lowest mortgage rate ever recorded was during the week of Apr 30, 2020, when the national mortgage rate dropped to 3.23%, which is the lowest rate ever recorded by Freddie Mac since 1971.

Q: Is 3.25% a good mortgage rate?

A: if you’re looking at a 30-year fixed contract, yes, a 3.25% mortgage rate is an incredibly good rate to pay for a new home on the market.

Conclusion

Throughout this write-up, we’ve given you all of the critical details and information you need to know about today’s mortgage rates and how to find the perfect terms for your next home acquisition. Use all of these tips so that the next home you move into can come at an affordable price while also having all of the critical features you want most.

Here is a great article on Seven factors that determine your mortgage interest rate

You may also want to have a look at our main mortgage rate page

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