Mortgage Rate News

I am often asked questions regarding personal finance, especially about home mortgage loans. One of the questions I was asked recently was this: “Do I need a credit check for a second mortgage?” The short answer is “yes.”

What is a second mortgage?

Before you can understand the why behind the neccesity for a credit check for a second mortgage, it is important to realize that a 2nd mortgage is really another loan altogether. One of the biggest money mistakes made by some is believing that a second mortgage is an extension of the first, and that it is not a new loan. It is important to realize this error.

A 2nd mortgage is a new loan. When you get a second mortgage, you are in reality replacing your original home mortgage with another loan. The 2nd mortgage pays off the first, and creates an all new mortgage loan. If there is extra equity in your home, that is when some people take a cash out refinance second mortgage.

Why you need a credit check for a second mortgage

Because a 2nd mortgage is a new home mortgage, you need to go through all of the steps associated with getting home mortgage loans. This includes a credit check. In fact, many lenders require a higher credit score for a second mortgage than they do for a first home mortgage. A second mortgage means that you are acquiring more debt, and that you could be a higher risk. Therefore, the lender wants to make sure that you will be responsible for the home. This is especially true of a cash out refinance second mortgage, since such a mortgage loan reduces the equity in the home.

Before you get a 2nd mortgage, think about the consequences. Why are you getting the second mortgage? Do you want to refinance to a lower interest rate? Or do you strictly want a cash out refinance? Will you be using your second mortgage for debt consolidation? It is important to understand that a 2nd mortgage is a new home loan, and that a credit check is necessary.

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When looking for a home mortgage, it can be helpful to get pre-approval for a home loan. This is a useful real estate tip because many sellers will not consider you unless you are pre-approved for a home loan. Consider a pre-approval when you first start thinking about buying a house.

Pre-approval lets you know what you can get

The reason many recommend this real estate tip is because it can be tricky trying to figure out exactly how much you will be allowed to spend. You want to know how much house you can afford for the money, thereby ruling out wasting your time on homes that you cannot afford.

Pre-approval lets others know you are serious

Many sellers become annoyed with buyers who are “just looking.” This is especially true if you have a budget that allows for more expensive homes. A pre-approval for a home mortgage will allow you access to look at homes that may be off limits to someone without pre-approval.

Before getting pre-approval for a home mortgage

Before you get started with the pre-approval process for your home mortgage, you should realize that a pre-approval will involve a credit check. So, before taking the step to pre-approval, you might consider pre-qualification. This is similar to pre-approval, but it takes place without a credit check. You receive an estimate from the bank regarding how much you might be able to borrow.

This can be helpful because it will help you shop around to multiple lenders to find a good home mortgage interest rate without pulling your credit score multiple times. Once you have a deal that you like, you can then choose a lender and go through pre-approval for the home mortgage that you want.

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Whether you are looking for a mortgage loan after bankruptcy, a first home mortgage or even a second mortgage, the subprime lending problems that have been evident since the first of the year are still affecting most people looking into home mortgages. However, murmurs have been heard that the subprime lending fallout may be contained. This video from the Bloomberg TV network shows how this subprime lending is being contained.

Part of the big difference is tightening lending standards. Instead of taking on higher risk borrowers, standards are tightening, and many that might have got a home mortgage loan before might not. And if they do get the home mortgage loan, chances are that they will need more documentation, and will pay higher interest rates. Eventually, insists Bloomberg, the mortgage industry will correct itself. But what will it do for borrowers?

Well, mortgage application volume remains steady, but mixed rates means that some may be paying higher rates due to their credit history, or due to how mortgage loan underwriters view the risk involved in the mortgage market right now. Mortgage News Daily reports:

The MBA survey showed mortgage application volume was up 0.9 percent on a seasonally adjusted basis and 25.9 percent on an unadjusted basis from the previous week which was shortened by the Independence Day holiday. Volume was up 15.7 percent from the same week in 2006.

Not only that, but refinance for second mortgage applications were up as well, presumably as homeowners attempt to switch their ARMs into fixed rate loans. Switching to an ARM might be a good idea, as no one is quite sure exactly where mortgage interest rates will go from here, although they are likely to go up soon as a measure of economic stability returns to the U.S.

Tags: subprime lending fallout, mortgage loan interest rates, home mortgage loan, subprime lending,
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