Living in an older home will often require some major house repairs from time to time, and some of the repairs needed might be very costly. If your home needs some work that will cost a lot of money, you might need to consider taking a second mortgage to pay for the repairs. This is a great reason to take a second mortgage, but getting approved for a second mortgage is not always that easy. Here are three factors that can affect your odds of getting an approval for this type of loan.
The Equity You Have
Of the main three factors that can affect getting a second mortgage, the amount of equity in your home is the most important. The equity is found by subtracting your loan balance from the current market value of your house. When a lender looks at the equity, they will view it in terms of percentage, and this is called the loan-to-value (LTV) ratio. For example, if your house is worth $280,000 and you owe $190,000, you will have $90,000 in equity, which means your LTV is around 68%.
Lenders are typically willing to loan money up to the point where the LTV reaches 80%. In this case, 80% LTV would be equal to $224,000, which means you would qualify to borrow up to $34,000 in the form of a second mortgage.
Your Credit Score
The second important factor to know about is your credit score. A score that is 700 or higher is often considered a good score; however, all lenders have different criteria for this. If you are not sure where your credit score is, get a copy of your credit report to find out. If your credit score is too low, lenders may deny your loan application for this purpose. Low credit scores present risks to banks that they try to avoid.
Your Income
The other important detail that can affect getting a second mortgage is your income. Lenders want to know that borrowers will be able to afford to repay the money they give them, which is why a lender will want to take a close look at your income and expenses. If it appears that you will have no problem repaying the loan, you may be able to get approved for it.
Getting a second mortgage is a great way to pay for house repairs you need. If you would like to apply for one, contact a lender today.
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