Your finances will play a major role in the kind of mortgage you get. If this isn’t your first home at least you have the experience from your previous home. However, even as you have experience you shouldn’t be less careful when it comes to your finances. These 4 questions can help you determine if you can afford a second mortgage.
1) Do I have equity to get a second mortgage?
To get a loan, you’ll need to have 20 percent equity in the very least. Meaning your home will should be worth $250,000 if you’d like to get a $200,000 loan. If you have less equity, you may have to pay $100 a month for private mortgage insurance.
2) What’s my credit like?
When applying for a mortgage or refinancing your mortgage they’ll check your credit score, In the case of a refinancing application a lower credit score won’t cause your application to be rejected. Instead the lower your credit score the higher your interest rates will be. Of course this isn’t always the case since programs like the VA and FHA help most buyers purchase property at a fixed interest rate.
3)How long should I spend paying this mortgage off?
To determine the repayment amount you should also consider the term your mortgage will be active for. While 30 years offers you the cheapest monthly rate, over time you’ll have paid the most interest. A shorter term allows you to have full ownership of your home in a shorter space of time as well as make significant savings since the interest rates won’t be as much.
4) Should I change my ARM to a Fixed Rate Mortgage?
If you have an adjustable rate mortgage, you may want to switch to a fixed rate mortgage as this offers you additional security. However, this isn’t a necessity if you know you’ll be moving soon.
When you’re deciding what to do, compare the cost of an additional mortgage with what it would cost you in interest to hold on to your existing loan. While the breakdown is different for every borrower, generally, you’ll need to keep your current house and loan for anywhere from three to six years to break even on the costs of refinancing.
Whenever you’re making decisions that will affect your finances you should speak to a professional. This isn’t any different when applying for a mortgage. A lender will have the expertise and the experience to walk you through the process so you get the very best deal.