Majority of homeowners applied for a home loan to purchase a house. Over time, you build a considerable amount of home equity which is your home’s value minus your existing mortgage. When the time comes that you wish to use your equity for whatever reason, you have the option to take a second mortgage.
Second mortgages, as the name suggests, is a type of home loan you can use while your first mortgage is still in effect. It lets you tap on your home’s equity with your house as the collateral.
Taking out a second mortgage has its pros and cons. Before you apply for a Second Mortgage Texas, take note of the following facts.
You Can Receive the Funds as A Lump Sum or Have It Deposited into Your Account.
There are two primary forms of second mortgages. The first one is a Home Equity Loan wherein your lender will give you a lump sum of cash. The second one is a Home Equity Line of Credit. Instead of receiving cash, you can withdraw a certain amount of cash deposited by your lender into your account.
Your Home Is at Risk for Foreclosure If You Fail to Pay Off Your Second Mortgage.
The risk for foreclosure is one of the biggest problems you may encounter if you fail to repay your lender. Since you will use your home as collateral, it would be beneficial if you make wise use of the funds instead of spending it on entertainment and leisure.
Good Read: 10 Tips to Avoid Foreclosure
You Can Get A Second Mortgage from Different Lenders.
Banks are not the only institutions that can give you a second mortgage. You can shop around lenders such as a credit union, an online lender, a loan originator, etc.
Second Mortgages Are Harder to Qualify For.
When you apply for a mortgage to help you buy a house, you’ll need to have a good enough DTI and LTV ratio, financial statements that prove you’re financially stable and save up for a down payment. For you to qualify for a second mortgage, you’ll also need to have enough equity in your home.
There Are Good Reasons for Taking Out A Second Mortgage, As Well As Bad Ones.
We all have different reasons for taking out a second mortgage. One of the best reasons to tell your mortgage lender would be to fund investments, consolidate debt, avoid Private Mortgage Insurance and even for home improvement projects. Some of the worst reasons would be to fund expensive purchases and luxurious trips.
Good Read: How to Dump PMI ASAP
You Can Get Tax Benefits Out of a Second Home Loan.
The interest you pay for a second mortgage can sometimes be deducted to your taxes – if you use the funds to finance home improvement projects.
There Are Other Costs Aside from The Low-interest Rate.
Most second mortgages come with low-interest fees. However, you need to consider other expenses such as loan origination fees, appraisal fees, and other legal costs. At least consider all fees involved before taking out a second mortgage.
Like all types of home loans, second mortgages also have its perks and cons. If you’re considering a second mortgage, make sure to check all the advantages and disadvantages, shop for lenders and not to forget to consider other options before applying.