Purchasing a home or refinancing an existing home is a major financial decision in your family's future financial goals and priorities. At times, two mortgages are needed to fully finance a home. While this may seem a bit overwhelming, having two mortgages is a fairly common practice in home finance. For best results, choose two programs that are as equally beneficial as possible.
Items you will need
- Two years of pay stubs
- Two years of Form W-2s
- Two years of tax returns
- Copy of homeowners insurance policy
- Copy of property tax bill
Access tri-bureau credit reports for both you and your spouse. These reports constitute the aggregate scores and reports from the three main credit reporting agencies: Experian, Equifax and TransUnion. To finance two mortgages, your combined creditworthiness must be excellent. Negative issues, like late payments or charge-offs, can affect your ability to secure financing. Clean up any of these issues prior to seeking financing.
Calculate your debt-to-income ratio and your disposable income. To calculate DTI, divide the total of your monthly debt payments, excluding utility bills and miscellaneous bills, like child care or day care, by the total of your monthly gross income. Ensure that your DTI ratio is below 45 percent. To calculate your disposable income, subtract the total of your monthly debt payments from your total net monthly income. Lenders want to ensure that you have a good financial cushion you can use to take care of your children and other bills.
Assess the loan-to-value of your home. To calculate this, determine the value of your home and the total value of your two prospect mortgages. Divide the total of your potential mortgages by the value of your home. The higher your LTV, the less competitive you will become as a borrower. Remember to subtract any down payment you have made on a home.
Research small banks and credit unions first, as these institutions often offer the most competitive programs on home loans. Using your LTV, DTI, disposable income and creditworthiness, determine which rates and programs you would qualify for without actually submitting several mortgage applications.
Review your financial and family goals with your spouse. The new two mortgages should help complement your priorities as a family as well. Choose a lender based on your preferences and the terms offered.
Bring your two consecutive pay stubs, your two years of IRS Form W-2s, two years of tax returns, a copy of your homeowners insurance policy and your property tax bill to the lender and ask for a first and a second mortgage application. More documents might be requested.
Meet with your lender after the loan has been processed through underwriting. Be aware that the terms of the second mortgage loan will likely be less competitive than the first mortgage loan. Mortgages in the first lien position on your title (in other words, the first debt to be paid) will always receive the most beneficial terms. Review all rates, payments and term lengths for your two potential mortgages.
Keep in constant contact with your lender during the underwriting process, as terms can sometimes change. Prior to closing, sit down once more with your loan officer to review the final approved loan terms for each mortgage. Ensure that these terms still meet your financial and personal priorities.
Close the loan with a family attorney. Review all closing documents and determine that the terms match those explained during your last meeting with your loan officer.
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