What Lenders Look For In a Second Mortgage Loan Application?

Homeowners sometimes need second mortgage loans to help with renovation work or repairs, but the whole idea of applying for another loan puts lots of homeowners off. As a homeowner, you don’t want to be lumbered with lots of troublesome paperwork and you probably aren’t sure if taking out a second mortgage is suitable for your needs also. However, maybe if you know what lenders looked for in a loan application for a second mortgage, you might be able to understand if it’s the right move for you. So, what do lenders look for in second mortgage applications?

The Amount of Equity within the Home

One of the most important factors lenders look at when deciding a loan application is the amount of equity within the home. Let’s say you purchased a home at $125,000 ten years ago, and it’s not worth $175,000, and you’ve paid around $50,000 back on the original mortgage loan, which leaves you with equity of $100,000. That’s an impressive amount of equity and it’s something which many lenders will like the look of. Mortgage loans are complicated at times because if the equity amount isn’t great then the home to the lender may not be appealing for them to offer a second mortgage loan.

Employment History

Next, the lender will take a close look at the type of employment history the owner or owners have had. For example, if both lenders have high paying jobs and have had steady employment within the last twelve months, it may appeal more to lenders than someone with only a few months of employment behind them. Second mortgage loans can vary drastically depending on the employment history of a homeowner. There are some owners with great employment records but still don’t get approval for a second mortgage, and that might be down to a lack of equity or because of current debts.

Credit Scores and Debts

Other factors lenders look at when someone wants another mortgage loan is their debt-to-income ratio and their credit scores. Now, why debts matter is down to the fact that if the lender believes your debt-to-income ratio is too high, they may feel you’re unable to commit to a further loan. Let’s say you have an average income of around $2,500 a month, but your total number of outgoings was $1,500, but you had additional loans of $800 a month before a second mortgage, that leaves $200 for the entire month. That’s not going to impress mortgage companies. When it comes to obtaining mortgage loans, you have to ensure your credit is good enough but also your debts are under control.

Know Your Eligibility before Applying

Applying for a new mortgage can put a strain on your credit and it’s worth avoiding that until it’s absolutely necessary. Essentially you should get pre-approved for a second mortgage before applying for a loan. Why? It keeps your credit in the best shape for as long as possible and may help prevent you getting rejected and having that on your credit report. With second mortgage loans you have to ensure your credit is good and that your debts aren’t too high either, as well as ensure there’s equity within the home.

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