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If you are trying to secure a second mortgage, the lender is going to closely evaluate your personal and financial situations to determine whether to give you the loan. There are certain things that lenders like to see when looking at a borrower. Here are the basics of what lenders look for in a second mortgage loan application.
One of the first things that a lender is going to look for is equity. They will want to see how much money you have available to you before giving you a loan. They will want to know how much equity you have accumulated in your current residence. They will ascertain this by subtracting the value of the home from the balance left on your primary mortgage.
The lender will also want to see that you have a certain amount of money in reserve. In many cases, they will want you to have at least six months' worth of money to cover the mortgages on both of your properties. This way, even if you lose your job, you will still be able to make your mortgage payments.
Another critical factor in evaluating your application is your debt-to-income ratio. Lenders have different standards for the debt-to-income ratios that they are willing to work with. In order to determine this ratio, a lender is going to add up all of the monthly debt payments that you currently have. They will also add up all of your different sources of income. They will then compare the total debt payments to your total income on a monthly basis. If the debt-to-income ratio is too high, they will not be able to extend a loan to you.
One of the most important factors a lender will look at is your credit score. Your credit score is a numerical representation of what type of borrower you have been in the past. They will pull your credit file that has information about all of your accounts in the past. Your credit score looks at things like how many late payments you have had, whether you consistently make payments on time, and how much debt you have. The credit bureaus then use this information to determine a credit score for you. Lenders will typically have a minimum credit score that they are willing to work with. When dealing with a second mortgage, your credit score will most likely have to be higher than it would if you were getting only a primary mortgage.
The lender is also going to pay special attention to your employment history. A second mortgage is a very large financial obligation, and the lender wants to make sure that you will be able to pay it no matter what happens. They will look at your employment history and make sure that you have not had any large gaps in employment. They will want to see that you currently have a job and that your income can support your primary and secondary mortgages.
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