People usually get a second mortgage or home equity loan when they need money to pay off big bills, consolidate debt, or make changes to their home. Most second mortgages are either home equity instalment loans (HELOANS) with a fixed interest rate or home equity lines of credit with an adjustable interest rate (HELOCs). Which one you choose depends on what you need, but the process for applying and getting approved is the same for both. The process of getting a loan will go as smoothly as possible if you follow these nine tips:
Look at other loan options and mortgage refinancing to see if a second mortgage is the best option.
Make sure you can explain to the lender why you need the loan. Your answer will help figure out if you are approved or not.
Check your credit report for mistakes and get your FICO scores (myfico.com/12), since your FICO score is what lenders will use to decide how much you'll pay for a loan. Check out "How to Improve Your Credit Score" to learn more about how to fix your credit.
Compare several home equity loan options. Talk to your broker or lender about the different loan programmes and find the one that fits your needs the best. Getting a good interest rates isn't a bad idea either.
When applying for a loan, you will get a mortgage checklist from your lender containing the list of paperwork you need to close the loan, including:
Copy of deed to property.
Recent tax appraisal.
Your last two years' W-2s, tax returns, and current pay stubs, or if you're self-employed, your last two years' tax returns. Make sure to include everything. #!# Proof of income from alimony, child support, disability payments, a lawsuit settlement, an inheritance, or another source of income. #!# A copy of your last three to six bank statements. #!# A list of all credit accounts that are open (account numbers, payment amounts, and balances). #!# Your current mortgage statement. #!# Information about homeowner's insurance (name, account number and phone number of agent).
The loan process will go faster if you fax the paperwork from the checklist instead of mailing it.
Fill out your loan application completely. If you don't, it could delay your approval and the closing of your loan.
Don't take bad loans. The Federal Trade Commission (FTC) says you may be signing up for trouble if the lender tells you to lie on your loan application, tries to get you to borrow more than you need, tries to get you to agree to unrealistic payment terms, shows up at the closing with a different loan product than you agreed to, asks you to sign blank forms, or won't give you copies of the documents you signed.
Has a lender turned down your application for a mortgage? Ask why it was turned down to find out what you need to do in the future to get a mortgage loan approved. Paying off a few credit cards can sometimes boost your credit score just enough to get you in.