Applying for a second mortgage is a great way to keep your down payment amount to a minimum and to keep more of your cash in your bank account. It can also help you to avoid making PMI payments, and some lenders may even waive escrows for taxes and insurance if you use a second mortgage instead of a higher first loan amount. Whether you want to enjoy some or all of these benefits, you may be wondering what it takes to set up a second mortgage. With a focus on these tips, you can more easily get the financing structure that you desire.
Make Your Request Up-Front
Financial circumstances can change over the course of the loan process, but it is usually best to request a second loan up-front. A second mortgage will change how the first loan request is underwritten, and it may change the terms that you qualify for. In addition, there is often a different underwriting process for the second mortgage. By making both loan requests at the same time, you can save time and minimize the need to backtrack through underwriting.
Work With a Mortgage Broker
Some mortgage lenders will provide you with both a first and a second loan, but it is far more common for these two mortgages to come from different financial institutions. Some banks and direct lenders will only work with a handful of second loan companies, but a mortgage broker may be able to shop around to get the best overall deal on your second mortgage terms. Therefore, if you plan to apply for a second mortgage, there may be benefit with working with a mortgage broker.
Consider Paying Off Debts
You will need to qualify for both your first and second loans separately, but the payment for both will be considered during underwriting. If you have a high debt-to-income ratio, you may consider applying for a higher second mortgage to pay off some outstanding debt. You can work with your trusted lender or mortgage company to think creatively with regards to the best overall structure of your financing and to determine if any debts need to be paid off prior to or at closing.
A second mortgage provides you with many benefits when buying a home. Speak with your trusted loan officer or broker today regarding the options available for a second mortgage for your home buying plans.