Qualifying for a second mortgage is quite simple. However, depending on the type of loan program and the lender, the steps could be slightly involved. In fact, qualifying for a second mortgage is generally just like qualifying for a first mortgage. Second mortgages are sometimes know as "equity loans," "home improvement loans" and "lines of credit." Read further for more information.
Gather all of your personal financial records. Like in a first mortgage transaction, a lender will likely need to review your income documents, bank account information and verify your employment history.
Contact your lender. This can be done in variety of ways. Because of technology, it may be possible to simply apply online or call a loan officer and provide him or her with qualifying information over the phone. He or she will then issue a pre-qualification notice after obtaining a electronic copy of your credit report and entering your income into the lender's automated underwriting system. If it appears that a loan may be given, a face-to-face interview will likely be scheduled, at which time you will be required to verify your income and other information.
Meet with a loan officer. After you have been pre-qualified for a loan, your lender will likely schedule an appointment with you. During this meeting, physical copies of all your pertinent financial records will be made so a processor or underwriter may verify the information you provided to the lender during your initial pre-qualification interview. You will also be required to sign a loan application and other important documents called disclosures, which vary from state-to-state.
Be available during the underwriting process. Due the significant amount of work underwriting sometimes involves, your lender may need to contact you to re-verify specific information. It is recommended that you be available during this time to resolve any issues that may arise to prolong the process. After you have been pre-qualified, met with your loan officer and signed the application paperwork, your loan file will be transferred to the lender's underwriting department. Shortly before or during the underwriting process, an appraisal of your home may also be done to determine its value and whether there is enough equity in the property in order to lend on it.
Attend closing. Second mortgage closings are conducted much in the same way as first mortgage closings. However, some lenders have special guidelines and closing methods for equity loans. Depending on your state and lender, your closing may be held at a title or abstract company, attorney's office, bank, or in your home. It is also possible to obtain second mortgages through the mail or online without being required to attend a closing or meet with a lender. Regardless of where or how the closing occurs, the process is relatively the same. During your closing, a closing officer will review and you will sign a series of paperwork called a closing package. After your documents are signed, you will receive your loan funds. This is sometimes a few days after closing, depending on whether you state offers a rescission period, which allows customers a few days to decide if they wish to proceed with financing. Keep in mind that closing costs, debt payoffs and other fees, depending on your situation, will be deducted from the loan first. This is typically not the case in some lines of credit, however. You may also be given a copy of your home's appraisal report, if one is done, at closing or shortly after.
Know your equity situation. Some lenders have specific equity guidelines that they will not exceed. It is, therefore, important to know with relative certainty what your home is worth and the current balance of your first mortgage.
Do not allow multiple lenders access to your credit report if you plan shop for the best interest rates. Multiple credit report inquiries will likely bring down your credit score, which could cause lenders to deny you financing.