Apply for a Second Home Loan

When you apply for a home loan for a second mortgage, you will probably find it is not as easy as the first one. Here are some factors to consider:

Lender's Criteria for Second Loan

There are three deciding factors a lender will look into before your second home loan application is approved:

  • debt-to-income ratio - A ratio indicates your earnings and how sufficient it is to cover your personal debts.
  • downpayment - At least 20% for the purchase price is required. If you cannot afford the determined cash downpayment you are obliged to buy mortgage insurance from companies like PMI Group Inc. or MGIC Investment Corp.
  • credit score - Credit standing is evaluated and the required score is higher than the first mortgage application.

Loan Rates and Options

When you apply for a home loan for another house, expect that the rate will be higher than for the first home you purchased. Nonetheless, there are options available which will help you keep the rate as low as possible. You can either use:

  • fixed-rate home equity loan - The payment and rate are unchanging. This option prevents you from the possibility of rising interest rates.
  • adjustable rate home equity line of credit - Rates are subject to changes based on a variety of indices. This alternative benefits you when the interest rate decreases, but when the interest rate increases, so will your loan rates.