Homeowners evaluate funding options for completing renovations. Home equity is a great way to pay for modifications and remodelling. The property owner could get a second mortgage and tap into their equity to pay for these projects. By reviewing what to expect, borrowers avoid common mistakes.
Does the Homeowner Qualify for the Second Mortgage?
The homeowner must have good credit scores to get a second mortgage. A second mortgage is borrowing a specific amount of the equity in the home for a variety of purposes. The homeowner must have a great history of on-time payments with their current lender, and they cannot have a credit score that is below 680. However, some lenders require a credit score of at least 700.
How Much Equity Will They Borrow?
When completing home renovations, the property owner must know how much equity is accessible to them and how much they will really need to complete the project. It is wise to avoid borrowing all the equity as this is essentially starting the entire mortgage over. Homeowners can learn more about using a second mortgage for renovations by contacting Dustin Dimisa now.
How Does the Debt-to-Income Ratio Work?
The lender reviews the consumer’s debt-to-income ratio to determine if the borrower can afford the second mortgage. If their ratio is more than 43%, the lender will deem the second mortgage unaffordable.
The borrower must have a monthly income that is at least 50% more than the monthly expenses. The lender will need financial statements from the borrower that shows their annual income for thorough calculations of their income. Lenders prefer homeowners that do not have an excessive debt volume, and if their debt volume is excessive, they won’t get a second mortgage.
Get Estimates from Contractors?
When planning renovation projects, the homeowner will need to get an estimate from several contractors to evaluate the cost of the project. These estimates help them find great options for their projects and avoid overspending on new designs and installations.
By taking their estimates to their lenders, the homeowner can get more out of their second mortgage. With a better calculation for the total cost, the property owner won’t borrow more than they will need for the projects, and they avoid high costs when paying back the mortgage.
Plan Ahead for the Unexpected
When discussing their renovation projects with their contractor, the property owner must consider problem areas and what could go wrong during the project. For example, if they are renovating an older home, the plumbing and electrical systems may need to be moved to accommodate the changes. If the property has been modified from the original design previously, the property blueprints won’t give them the right information.
Homeowners take out second mortgages to access their equity and complete renovations. The funds are available if they have at least 20% equity in the property. However, some lenders may require a larger equity percentage before extending a loan to the owner. Homeowners can learn more about a second mortgage by contacting a lender now.