Get your estimate in writing early in the home loan process.
When you submit your loan application to your lender, he has by law three days to provide you with a Good Faith Estimate. Make sure your lender doesn’t drag you along for a ride. Get the estimate in writing early on in the process, so you can read and thoroughly compare.
Are you getting a loan for the right reasons?
If you’re going to go through the expense of refinancing your home mortgage, you want to make sure you’re doing it for something that is positive and not going to hurt you. If you’re doing it to consolidate debt, that’s one thing. If you’re doing it to take that trip to Paris you’ve always wanted, it’s not so wise. It costs you money every time you refinance your loan.
Recommended Refinance Lenders:
Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- This company provides up to 4 loan offers from one application. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.
How your PMI is affected by your loan?
If your second mortgage means that the total value of your combined home loans totals more than 80 percent of the complete value of your home, you will be responsible for paying a monthly PMI charge. PMI is private mortgage insurance that lenders get to protect them against the possibility of you defaulting on your loan.
Will I get a lower interest rate if I apply for my second mortgage during a certain time of year?
Yes, strangely enough. Most people apply for second mortgages during the spring and summer months, so lenders tend to raise their fees and interest rates during these months. But if you apply for a second mortgage during the fall or winter seasons, you may be able to get better rates and lower fees.
Recommmended Mortgage Lenders:
Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- This company provides up to 4 loan offers from one application. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.
Beware of becoming upside down on your loan
This is a major warning. Do not allow your home’s value to become less than the value of the loan. Know the real estate market that your home is in. If your home’s value is deteriorating and your loan value is increasing, you can be in trouble. If your home home’s value becomes greater than the amount your loan is worth, you are then responsible for paying for the difference to your lender.
What if I might refinance my mortgage over the next year?
If you have been thinking about refinancing your mortgage over the next year, you probably want to stay away from a second mortgage today. If you have two mortgages on your home, especially if one is a recent mortgage you can be more easily turned down for a mortgage refinance. Or worse, your lenders can and will charge a higher interest rate because of your recent second mortgage.
Recommmended Bad Credit Mortgage Lenders:
Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- This company provides up to 4 loan offers from one application. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.Recommmended Bad Credit Mortgage Lenders:
Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- Our#1 Recommended mortgage lender. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.
Watch out for the fees
When you look for a second mortgage, get several lenders to compete for your business. Compare those offers side by side. Keep in mind that while the terms of the loans and interest rates might be comparable, their fees might not be. Some mortgage companies will have hidden fees. Watch out for high fees that mean nothing.
What to know about using a mortgage broker
If you go with a mortgage broker to find you a loan, you expect good service. Make sure your broker is definitely working hard to find you the best-possible loan and not just one that helps them out the best. Talk with your broker about getting a loan with the best-possible terms for your loan.
Watch out for add-on products
Read the terms of your loan carefully along with the list of your fees. Many lenders will try to tack on products and services on to the loan and tell you’re they’re mandatory or make you feel as though you don’t have a choice. When this happens, most of the time these products and services are not mandatory and are up to you whether you make the purchase.
Read all the documents
Do not let anyone pressure you into signing any documents, before you thoroughly read them. If the person reading you your mortgage contracts whips through them quickly and acts as though there isn’t much time and that you need to sign now, calmly tell the person that you need to take your time and read the documents thoroughly and perhaps even take them home for a few hours or overnight before you can completely understand what you’re signing.
The lowest interest rate isn’t always the best loan
Low interest rates are important and often essential when selecting the loan that’s right for you. But the lowest interest rate is not always attached to the best loan for you. Compare several loans side by side and compare all aspects of the loan from the interest rates to the loan terms to the fees involved. Often the companies with the lowest interest rates produce loans with the highest fees.
What if you don’t make payments on time?
Keep in mind that your second mortgage is a loan against your home. Just like with your first mortgage, if you don’t pay your second mortgage payments on time you can lose your home. Also, many second-mortgage loan terms include a clause that makes you responsible for paying the entire balance of your loan, if you are late on a couple payments.
Is a free loan really free?
Many lenders offer free home equity loans. This means that they are waiving closing costs in order to get your business. Regardless, no money is truly free. It is still money that must be repaid. Analyze the amount of your new loan versus how much you can afford to pay each month to decide whether the loan is right for you.
What if the value of the loan is higher than my property value?
If the combined value of your mortgages is greater than the value of your property, you will be responsible for paying the difference. Be alert to possible declining property values in your neighborhood before you sign up for a second mortgage, so you can know what to expect.
What if you change your mind?
If you’ve already signed on the dotted line and everything appears to be final, it’s not. Because your house is used as collateral on second mortgages or home equity lines of credit, federal rules allow you to cancel the contract for any reason up to three days after you signed. Make sure you cancel in writing.
How do I know if the loan will save me money?
Take a good look at the numbers your lender presents you. Find out what the cost of interest and payments will be for the rest of the term of your mortgage and what your break-even point will be for a refinance. Figure out whether there are worthwhile savings.
Watch out for Negative Amortization loans
Negative Amortization loans never work. Many lenders will propose you get an interest-only variable rate mortgage and pay only the interest each month. The rest of your monthly payment would go into an interest-bearing account. The loan payment you make with Negative Amortization doesn’t even have to be high enough to cover all the interest expenses. Instead, the balance of your interest each month simply is tacked on to the principal balance of your loan. Some lenders want you to believe that the interest in your savings account outweighs the costs of your added principal. But you always end up owing more interest on the total loan amount than what you borrowed to begin with.
Be cautious about what you use the loan money for
Don’t use the money in a second mortgage or line of credit loan for something that has no value. Don’t use it on a vacation or a party or to pay your monthly bills. Especially do not use it to pay for a new car that depreciates in value the instant you drive it off the lot! Use a second mortgage to improve your financial situation and your ability to pay your bills.
Know what the tax implications are of your loan
You won’t owe any income taxes for borrowing money against your home. But you will owe income taxes on money you gain from investments you buy with your equity money. If you invest your money in an interest-bearing or a brokerage account, you will be responsible for capital-gains taxes.
Can I get a home equity loan that’s greater than the value of my property?
If you have good, solid credit, it may be possible for you to qualify for a loan than is greater than the value of your property. Many lenders offer loans up to 125 percent of the value of your home. Keep in mind that the addition 25 percent of your loan is unsecured and is often treated like a typical credit card payment.
Know what types of loans are available to you
This is especially true if you use a mortgage broker. You might be presented with a number of different types of loans for you to consider. Every loan has its good points and its bad ones. Make sure you thoroughly understand the varying terms of different loans, so you can make educated decisions about which one is right for you.
Get several loan quotes
This is imperative. Don’t fall for one lender wanting your business and sending you what appears to be a great deal. Get an estimate from that lender along with an estimate from two or three others before you decide which one gets your business.
How do I know which loan is best for me?
Sit down with your estimates and look at interest rates, loan terms, and fees. Then compare them with what truly fits with your needs. Does one or more of the loans become more appealing because it fits with what you are hoping to accomplish?
How your credit is affected by a second mortgage?
Your credit score is affected by your ability to pay your loans on time and by how many inquiries are made into your credit score. As long as you pay your second mortgage loan on time, you’ll be fine. But if your spending habits show that you’ve had a number of credit inquiries within a short period of time, your credit score will be adversely affected.
Don’t hide your financial past
This can hurt you. It’s very tempting to hide negative aspects of your credit history. But if your lender finds it out from someone other than you, they will give you an even higher interest rate than they otherwise would to someone who was upfront with them.