The process of getting another home loan when you already have one is similar to the process you went through for your first mortgage. The tricky part is that your rosy picture as a mortgagee has changed significantly. Since you already have one mortgage, lenders review you very closely before being willing to fund a second mortgage.
The Good News
When you're applying for another mortgage, a bank reviews you in much the same way it did when you applied for the loan you hold on your first home. The big difference is that you now have a critical piece of the lending puzzle added: Your credit history on your current home mortgage. A history of paying your mortgage on time strengthens your credit history, especially when you twin that with the additional time you've spent in your career. The combination of strong credit and job history strengthens your picture as a mortgagee.
The Bad News
Double-dipping into the mortgage pool isn't forbidden, but the second dip makes things tougher for you as a borrower. Your credit history when you attempt to purchase a second home is altered by the existence of the first loan. Simply put, your debt-to-income ratio changes radically when you take on a mortgage. A potential lender is also looking at your debt-to-income ratio with the addition of a second mortgage payment added to the mix. Any time you check your credit for a loan, your credit score also takes a slight hit. And if you added a bunch of consumer debt (credit cards or store cards) to furnish your first home, your debt-to-income ratio may not be as healthy as the lender requires to approve an additional mortgage.
While it's certainly possible to obtain a second loan when you already hold a mortgage, it can be difficult and surprisingly expensive. Your lender may require a significant down payment, 25 percent or more, to ensure you have the funds to close the second deal. Lenders also review whether you have the income to cover more than just the mortgage payment. You'll need to prove you can cover property taxes, homeowners insurance and any dues required by the homeowners associations.
Starting the process of pursuing a second loan may seem eerily similar to what you went through when you sought your first loan, because it is. Shop around for the mortgage terms for your second loan just as you did for your first mortgage. And run the numbers just like you did the first time; it's always worth knowing your options in the topsy-turvy housing market. The process ensures your mortgages are managed as savvily as the rest of your portfolio.
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