If you already own a house and you’re thinking of getting a second one, this is the best time to take advantage of the drop in home sale prices and mortgage rates. In California, the median home price is $252,000 which declined 1.2 percent from last month’s rate while a piedmont real estate has an average listing price of $2,043,079 representing a decrease of 2% or $3,981 from the previous week.
There are Things to Consider when Purchasing a Second Home:
It must be located a reasonable distance from your primary residence, it is limited to one-unit homes, the occupancy cannot be controlled by a management agency, it may not be rental properties or timeshares, you must occupy the home for a portion of the year and it must include suitable utilities for year-round occupancy.
A second mortgage loan doesn’t have to be used to buy a house. You may use it for funds to pay home repair and remodeling, school tuition, debt consolidation, a vacation or whatever is your need at the moment. So before we dig deeper let’s first define a second mortgage. A second mortgage, also known as home equity loan, is the type of loan in which the amount is determined by the amount of your home’s equity. This is the difference between the current value of your home and the outstanding principal balance on your first mortgage. For example your home is appraised for $525,000 and you still owe $450,000 to a mortgage company, the equity in your home is $75,000 which is also the maximum amount you can borrow on your second mortgage loan. Since the loan is based on your home’s equity, your house is now put up as collateral. This means that if you default on payments, your house could be taken away in a foreclosure process. When this happens, the first mortgage is paid off completely before the second mortgage is paid. This makes it riskier for the home loan lenders and is the reason why the loan comes with a much higher interest rate.
There are Two Types of Second Mortgages:
The fixed rate mortgage is the type in which interest rate is fixed for the entire duration of the loan. The home equity line of credit is typically an adjustable rate mortgage where the interest rate on the loan is fixed for a certain period of time and will then be adjustable for the remainder of the loan. The mortgage interest rates and monthly payment will vary based on changes in a pre-selected index. The most common indices are the Treasury Bill, Certificate of Deposit, London Inter-Bank Offered Rate and Cost Funds Index.
To get a second mortgage, you must first determine if you qualify. Since this type of loan is risky for the lender, they will take precautionary measures to make sure you are able to pay what you borrow. Having a good credit score will give you better chances of approval. This will also provide a basis for the interest rate on the loan. The higher your credit score, the lower the interest rate so it is best to work on improving your score for a few months before applying for a second mortgage. Other documents the lender will require are proof of income, debts, and other financial information. Have these ready with the application form and you should have no problem getting the second mortgage loan.