Deanna Valeo

A second mortgage or HELOC can hurt your chances to refinance

A second mortgage or HELOC can hurt your chances to refinance your first mortgage. Here are five things you need to know:

1. Many people took out second mortgages or HELOC loans to consolidate debt or do home improvement after they purchased a home. If the loan was taken out after closing and you want to refinance the first and second mortgages and consolidate them into one loan payment, the second will be considered “cash out” as if it was a credit card being paid off. The lender guidelines are different for “cash out” mortgages in that they require certain FICO scores and loan to values and in order to qualify for the loan. You might not qualify for a new mortgage under the new guidelines, so have your mortgage loan officer run the numbers before you begin.

2. If you took out two mortgages to buy a home, you may now be looking to refinance and consolidate them both into one payment while the rates are still low. For purchase 2nd mortgages that are combined into a new first mortgage these are considered "rate and term" refinances and are done similarly to refinancing a single loan. Home value is the only challenge.
Note: If you modified that “purchase money” second mortgage in anyway after you bought the house, it would be considered a “new” loan and considered cash out when you refinance (see the above).

3. If your new first mortgage is over 80% of the value of your home you may still benefit using Lender Paid Mortgage Insurance (LPMI). This entails using a higher rate to pay for a single paid mortgage insurance provided by the lender for your benefit. This is limited to 85% for “cash out” and 95% for rate and term (if your 2nd was used to buy the house and was not changed).

4. You might choose to refinance only the first mortgage and subordinate the existing second mortgage again. Many people choose to do this if they still want the same terms for the second mortgage or if the value is not there to consolidate them. Two things you need to know before you get started with this. One, the new lender will have certain requirements to keep the second mortgage in place. Typically lenders will not allow the both mortgages to be greater than 85-90% of the home. Two, the existing lender who holds the second mortgage must agree to allow the mortgage to be in second position behind a new first mortgage. Call the service department on your 2nd mortgage and find out what the parameter are for the process and cost of doing so. It just might not work or be worth it (this also can take up to 6-weeks). We can help with this process. Please note some lenders will require you change the terms of your loan as well.

5. You very well might have to continue with a first and second mortgage, either by taking out a new loan or subordinating your existing second. This would be in cases, where the value does not work, your new loan amount is over the conforming loan limits of $417,000 or the loan to value does not work. The loan officer would suggest this based on the current value of your home and other factors. Getting new seconds is more difficult however they are still possible. The terms are not as attractive as they were in the past.

Mortgage interest rates a great now, but getting a loan is a different story. If you need two mortgages, this makes it even harder. Things to consider before you get started:

Make sure you have a good loan officer can that offer you choices, options and the best advice before you get started. The process is long, so find out how much time you need and what the options are a list below can help your loan officer do a case study for you to determine if a refinance makes sense.
Know what the terms of your second mortgage are and find out if you ever modified it – did you change it from a variable to a fixed rate?

If you used the second to buy the home, find the original note and closing statements, the lender will want to see them – this can make your rate better and your LPMI options better.

Call your Realtor to ballpark your current value – Zillow and other sites are only good if similar homes sold in the past three months and are easily identified. Your Realtor will have a much better feel for what you home would sell for now. Remember they are there for you even now.

Know your FICO score

Figure out how much your new loan would need to be based on the existing first and second mortgage

Think about if you want to come up with some cash to make up the difference or pay for your own closing costs if need be

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team - (704) 366-7711

Todd Croy - NMLO license #91428

Deanna Valeo - NMLO license #91421

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The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply. Date: 11/08/2010


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