Items you will need
- Credit report
- Income documents (W-2s, pay stubs)
- Mortgage paperwork (mortgage note, mortgage statements)
- Property tax bill
- Copies of bills to be consolidated
Mortgage loans are used for a variety of purposes. While the main purpose is home buying, these loans are often used to help consumers consolidate and eliminate debts. If you have a home with some equity and overwhelming credit card or consumer debt, you might benefit from a mortgage consolidation. However, this process can be challenging since it requires full mortgage underwriting and verification.
Pull a free copy of your credit report from Annual Credit Report. You should also pay for your FICO score, too. This three-digit number between 300 and 850 represents your total credit profile. Scores over 720 are great; scores below 600 are poor. Do not consider a mortgage consolidation unless your FICO is more than 620.
Estimate the value of your home. Before adding debt to your existing mortgage, you must make sure you have enough equity to take on more debt. Use an online valuation site, such as Zillow.com, to make an educated guess. Subtract the current balance of your mortgage from this value to find your equity.
Decide between a second mortgage, Home Equity Line of Credit (HELOC) or refinance. A refinance including debt consolidation will often offer the lowest rate since all debt will be in one loan. HELOCs are the most flexible since they are revolving (and allow you to re-borrow, if necessary). A second mortgage is typically a closed-end mortgage behind your first mortgage.
Research lenders based on your loan preference and your FICO score. If you have some credit problems, you may need to look at finance companies such as CitiFinancial and HSBC Finance Corporation. With excellent credit, you should look only at local banks and credit unions.
Choose two or three lenders and submit all documents to the loan officer. This includes not just income documents, mortgage documents and property tax bills, but also copies of all debts you hope to consolidate in the mortgage loan.
Compare all loan offers before choosing a lender. Pay close attention to the fees associated with each offer, especially the origination fee. This is usually charged as a percentage of the loan (for example, a 1 percent origination fee on a $200,000 loan is $2,000).
Lenders are often more than willing to consolidate bills into your mortgage loan. However, you must ask yourself: Do I really want to place my unsecured revolving debts against my house? Once these debts are secured with your home, default can cause you to lose your home.
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