How to Qualify for a Second Mortgage
Qualifying for a second mortgage does not need to be a mystifying experience. When you work with a knowledgeable mortgage broker or lender, your experience with applying for and obtaining a second mortgage will be a fairly painless one. It is very important to know the basics of how to qualify for a second mortgage. Many people have been denied because they simply did not understand what was needed from them.
The first thing you need in order to qualify for a second mortgage is that you must have more than twenty percent (20%) of equity in your home. Equity is the difference between what the fair market selling price and the balance of the primary mortgage. If that difference is at least 20%, then you will have met the first qualification. For instance, if your home is worth C$100,000 and you owe C$50,000 on your first mortgage, then you would have C$50,000 of equity in the home, well above the required 20%. Some lenders allow you to borrow a percentage above the total amount of equity you have while other lenders only allow you to borrow a percentage of the total equity. This is known as the percent to value ratio. If you have C$50,000 of equity, but can only borrow 80% loan to value ratio, that means that you would only be able to borrow C$40,000 instead of the entire C$50,000.
The next thing that could help or hinder your ability to obtain a second mortgage is your credit rating. Lenders use your credit rating to determine your likelihood of fulfilling your financial obligations in a timely manner. If your rating is too low, you will not be approved for a loan. Some lenders are willing to lend to people with damaged credit, but they compensate the additional risk by charging a higher interest rate. The better your credit rating, the lower the interest rate you will be able to get. It is wise to monitor your credit well before you begin your search for a second mortgage. Obtain copies of your credit report and have any mistakes or disinformation corrected. Make sure those changes appear on your credit report because they could increase your score significantly. Make it good financial habit to audit your credit report on an annual or semiannual basis.
Another qualifier would be your employment status. Being fully employed on a long term basis with one employer will be favorable to you. Your long employment with one employer will be seen as stable income and increase your chance of being approved. Be sure to have in your possession your tax returns, bank statements, proof of employment letters, and the documents from your primary mortgage when you apply for your second mortgage. Qualifying for a second mortgage will not be a stressful event if you are well prepared. Having all of your documents in place, knowing your credit rating, and having adequate equity in your home will ensure success in obtaining the funds you need.
Suzanne Simpson is Mortgage Associate based in Canada. She has written many papers on Mortgage and related topics. For more information on <a href=”http://www.canadianmortgagesinc.ca/second_mortgage/“> second Mortgage</a> and <a href=”http://www.canadianmortgagesinc.ca/second_mortgage/canada.html“> Second mortgage in Canada</a>,
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