Should You Get a Second Mortgage?

When a family buys their first home, it’s hard to comprehend the necessity of taking out a second mortgage. After all, an initial mortgage loan can extend anywhere from 15-30 years, which can seem like a lifetime to first-time homebuyers. Yet these days, it is becoming more and more common for homeowners to take out a second mortgage before their first is paid off. While this decision should not be entered into lightly, there are some scenarios where it can be appropriate.

What To Know About Second Mortgages

The definition of a second mortgage is fairly straightforward: it is just an additional loan that is added to your initial home loan. (This should not be confused with the process of refinancing your home, which allows you to alter the terms of your initial loan). The process of taking out a second mortgage is not too different from taking out a first mortgage. You will still have to complete a thorough application process, and you will still want to decide what loan type and interest rate (e.g. variable or fixed) will be right for you. The primary difference is that in this case, you will essentially be leveraging the equity in your existing home.

When Your House Falls Apart

Even if your home is in good condition at the original point of sale, there will inevitably be a need for some repairs down the line. You could be halfway to the payoff date on the initial mortgage when you discover that your roof needs to be re-shingled or the exterior of your building needs new stucco. Such projects require fairly urgent attention, and can cost tens of thousands of dollars depending on the size of the house. Thus, the necessity for major repairs is one viable reason to consider taking out a second mortgage.

When Your Kids Go to College

The second major expense that homeowners will likely face in their lifetime is college tuition. With tuition rates continually on the rise, it is becoming less and less possible for parents to help their children pay their way through school out of pocket. While student loans are an option, interest rates are also on the rise—and no parent wants to see their child saddled with copious amounts of debt right after school. Thus, if you have children heading off to a prestigious university (which can cost upwards of $250,000 over four years), a second mortgage can be useful.

Warnings and Caveats

While a second mortgage might be necessary to cover unexpected repairs or expected college tuitions, that does not mean it is appropriate to cover other kinds of debt. In fact, there are few other scenarios where such a hefty loan would be required. For instance, avoid taking out a second mortgage to pay off large amounts of credit card debt. This does not really eliminate the unsecured debt, but simply shifts it to your home, leaving you vulnerable to racking up more credit card debt on your now “empty” cards.

Before opting to take out a second mortgage, it is important to make sure you will be able to make the payments. Most financial advisors suggest offering a 10% down payment as well, to expedite the pay-off process. After all, if you aren’t able to stay current with your second mortgage payments, the loan will ultimately do more harm than good.

How to Find the Right Mortgage Lender

Selecting a mortgage lender can be one of the most difficult and confusing aspects of the mortgage application process. Do you go through a broker or work alone? Do you select a bank or a credit union? How do you narrow your options? These are pressing questions for any potential homebuyer. Because the decision you make can have a significant impact on your interest rates and loan terms, it’s important to select your lender with caution.

Know What Questions to Ask

First and foremost, it’s important to know what questions to ask when “interviewing” potential mortgage lenders. Many applicants simply ask about interest rates and fees, but it’s important to be more specific than this to get a better sense of what a lending institution is really like and whether they have your best interest at heart. For example, ask about the various types of loans they offer, how soon they can provide a good faith estimate, and what their closing costs are. Additionally, ask them to explain their rate and fee scales, rather than just listing off numbers.

Ask Around

It’s also important to inquire about the mortgage application and loan process outside of the lending institution sector as well. If you have friends who have recently purchased a home, ask them about their lender. Were they happy with the rates and fees? Did any of their loan terms change unexpectedly? Were they hit with hidden fees? Did the lender walk them through the mortgage application process carefully and thoughtfully? A positive review from a trusted friend can be a great sign.

Consult a Professional

If you are working with a real estate agent that you trust, he or she can also be a sound resource for lender referrals.  After all, an agent who is truly acting on your behalf will never direct you to a lender who has proven unreliable in the past, as this bad advice can negatively affect the agent’s reputation and future business. If a real estate agent is hesitant to provide a single name, ask them to at least provide you with a short list of the most reliable and reputable lenders, which will help narrow down your options.

Decide Whether You Want a Broker

If you find the task of selecting a lending institution on your own to be too overwhelming, you may want to consider working through a mortgage broker. A broker acts as a liaison between the applicant and the lender, and he or she will typically choose the bank or credit union that will service your loan. They will also help in drawing up and explaining all of the paperwork and application details. Mortgage brokers can streamline the application process, but they do charge a fee, so you’ll need to factor them into your budget.

The key to selecting the best mortgage lender is research. If you are prepared and informed when you enter into the mortgage application process, you’ll be much better equipped to identify unreliable lenders and to ultimately select a lender who will truly work in your best interest.

What To Know About Mortgage Lenders

Anyone looking to buy or refinance a home is likely aware that they must deftly navigate and negotiate a variety of different aspects of the home mortgage process. While many people focus on their credit scores, interest rates, and down payments (all important details, of course), they often overlook the importance of learning about the mortgage lenders themselves. This is essential to staying informed about the major investment at hand.

What Does a Mortgage Lender Do?

In the most basic terms, mortgage lenders are in charge of loaning out money to either prospective buyers or to those looking to refinance property. Essentially, these lenders take on the immediate responsibility of the loan, and much of their work is spent assessing the risk of granting a loan to an applicant. Mortgage lenders offer secured loans, which are loans backed by collateral (i.e. the house itself). This means that in the event that a buyer cannot pay back the loan, the lender (usually a bank or major financial corporation) will seize the property.

Lenders vs. Brokers

While the terms “mortgage lenders” and “mortgage brokers” are often used interchangeable, these two positions are not the same. While mortgage lenders actually distribute the funds for a home, the brokers are more accurately defined as “middle men.” There are pros and cons to working through a mortgage broker. On one hand, they often have connections that allow prospective buyers to get a lower interest rate than they would if they worked directly with a lender. On the other hand, brokers do add an extra (possibly time consuming) step to the mortgage process, and of course, they do charge a fee for their services.

Who Are the Major Players?

Even if a loan applicant works directly with a mortgage lender rather than through a broker, there are still a number of different hands involved in the loan process. While mortgage lenders handle the loan itself, they themselves are reliant on investors to provide them with the funds. Additionally, mortgage lenders keep a team of underwriters on staff, who are in charge of assessing both risk and profit potential for the lending company. Mortgage lenders also employ servicers, who handle the day-to-day business surrounding the loan authorization, such as home inspection and fee collection.

What Information Will Lenders Require?

First, mortgage lenders will require applicants to sign an origination agreement, which is really just another term for the initial loan application. This does not guarantee the loan, but does set the process in motion. The mortgage itself is not official until the applicants sign the promissory note, in which they attest to their ability to pay off the loan in specific increments over a dedicated period of time. Mortgage lenders then draw up a lien on the home, which they hold until the loan is paid back in full.

Knowing what to expect from a mortgage lender takes a bit of the stress out of the loan application process. This information can also help homebuyers decide whether or not it would be worth their while to work with a broker, or to deal with a lender more directly. As always, the key to finding the best deal with the least amount of anxiety is preparation and research, and this applies to lenders as well.

5 Sins Made by Mortgage Consumers

Consumers are simply leaving thousands of dollars on the table by not shopping for a mortgage effectively.  Such negligence was reported in November 2012 by Fannie Mae in a recent study on the topic of Mortgage Shopping.   The research shows those that make efforts to get multiple quotes and use available tools have the advantage. Once you have analyzed all the information you’ve gathered, you can feel confident that you are making the best decision and getting the best rate you possibly can for such an important purchase.

1. Grabbing the First Thing You See

Savvy buyers when it comes to mortgages save thousands of dollars. They tell you not to rent the first apartment you look at, and there are many mortgage companies to consider. Don’t be afraid to shop around and get multiple quotes so you can make an informed and educated decision.

Bacon Shortens Your Mortgage Term

Bacon Shortens Mortgage Term

Applying extra dollars or “bacon” toward mortgage payments is an economical method to rid of one’s mortgage early.  When closing on a home loan, most mortgage borrowers go into shock when they discover the total amount they will be paying to finance their home.  There are several ways to shorten the mortgage term to save thousands.

Bi-Weekly Payments

Borrowers can use simply make use of the 52 weeks in a year to add an extra payment to the principal.  A Bi-Weekly program has 26 opportunities to make payments to the bank using what adds up to a payment annually.  The extra “bacon” applied annually as a payment will reduce a mortgage term by a little over six (6) years.

Homeowners can inquire with their lender about a bi-weekly payment program to save on their payments over the long run.  The Bi-Weekly program is excellent for borrowers who want an easy to manage payment option.

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See on Scoop.it – Mortgage Knowledge and Technology

Jeff Chin‘s insight:

Home insurance is mandatory for homeowners and property investors.  Combine an essential product with some creativity and imagination, you get a very entertaining perspective on a product required to go along with your 30 year fixed mortgage or 5/1 adjustable rate mortgage.

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Low Interest Rate Mortgage Refinance Loan – Benefits of a No Obligation Refi Quote

Many websites offer free online quotes. The key advantage is time savings in getting quotes to shop for your needs, whether for a home purchase or a refinance. Most sites will have fixed rate mortgages, adjustable rate mortgage, jumbo, VA and FHA programs.

Your Top Home Ownership Tax Questions Answered

The effect on a home owners taxes can be confusing. Having a licensed CPA help with some common questions is very helpful.

 

homestobetsy

Article From HouseLogic.com
By: Natasha Padgitt
Published: December 31, 2012
Which tax benefits do home owners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day.
There are a lot of home ownership tax benefits (http://www.houselogic.com/home-taxes-financing/taxes-incentives/) – if you don’t forget to take them. To make sure you get your due, HouseLogic asked tax expert Abe Schneier, a senior technical manager with the American Institute of CPAs (http://www.aicpa.org), for tax-filing tips.
HouseLogic: What’s the most common home-related tax deduction or credit claimed by home owners?
Abe Schneier: The mortgage interest deduction, [which the NATIONAL ASSOCIATION OF REALTORS® estimates amounts to about $3,000 in tax savings for the average itemizing home owner] and [the deduction for] real property taxes (http://www.houselogic.com/home-advice/property-taxes/property-tax-appeal/).
HL: Which tax provision do home owners often overlook?
AS: You can deduct mortgage insurance premiums (http://www.houselogic.com/home-advice/tax-deductions/deducting-private-mortgage-insurance/)…

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The Three Golden Rules of Mortgage Shopping

Fixed Products
A home loan in which the interest rate will remain the same through the life of the loan, most often 15 years or 30 years. More recently, the 10, 20 and 40 year fixed mortgages are being offered on the market. Rates for shorter term fixed mortgage are lower, but payments will be higher. Borrowers that do not want to chance their payments changing over the life of the loan prefer the fixed rate mortgage.

Adjustable Products (Adjustable Rate Mortgages, ARMs)
Home loans with periodic changing interest rates based on a standard financial index are called Adjustable Rate Mortgages or ARMs. Most ARMs have caps on how much an interest rate may increase. ARMs have optional initial fixed rate periods in 1, 3, 5 or 7 years. ARMs, most often, have cap limits on the total rate on the life of the loan, as well as, how much a rate can increase over a period. Borrowers with shorter views on keeping their property choose ARMs.