Homeowners seek second mortgages for a number of reasons. From debt consolidation to home improvement projects, the money from a second mortgage makes it easier to reorganize obligations and complete projects that increase home market values. Under certain circumstances, obtaining a second mortgage is simple. Here are some of the factors that most lenders will consider before approving the loan application.
The amount of equity you currently have in the home will be one of the first factors the lender will consider. Equity is usually determined by comparing the current market value of the property with the amount you still owe on the first or primary mortgage. The difference between the two figures is the the equity you have in the home.
For example, your home has a current market value of $500,000 and you owe $125,000 on the mortgage. That means the lender will consider your total equity to be $375,000.
Keep in mind that many lenders of second mortgages in Cambridge and the surrounding area will not extend a home loan for the entire amount of your equity. However, if your plan is to secure $50,000 to consolidate debts or to make home improvements, the lender is likely to give your application serious consideration.
The amount of money you earn each month will also be a factor that the lender considers carefully. The goal is to determine if you meet the minimum income required for this type of loan.
Lenders who extend second mortgages understand that they assume risks that are not present with primary mortgages. In the event that the debtor defaults and the property is seized, the remaining balance of the second mortgage is only considered after the primary mortgage settlement arrangements are complete. In order to minimize the risk, the lender will take a close look at the income you generate and determine if your income is likely to supply the resources needed to make the mortgage payments for the entire loan term.
Lenders of second mortgages in Ottawa will also consider the total amount of debt you currently manage. Along with the mortgage payment you already make each month, the average payments made on debts like automobile loans will be considered. If you have unsecured debt like credit card balances, expect the lender to inquire about those amounts.
Ultimately, the point is to ensure you have enough income to pay all of your debts each month. If you are managing to do so now and there is enough income left over to cover the payment on a second mortgage, there is a good chance you will be approved.
Remember that banks are not the only sources of second mortgages. You will find other lenders who will be happy to talk with you about a private home loan or some other solution. If you have been rejected by your bank, don’t give up. An alternative lender may be willing to provide the financing you need.