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It’s no secret that the second mortgage market thrives when interest rates are rising. Homeowners that need quick cash are reluctant the refinance their existing loan because the current interest rates are higher than what they already have. A home equity line or 2nd mortgage enables a borrower to get access to quick money without being required to refinance their low rate lien.

Why would a homeowner want to trade in their home loan that has a 3.25% fixed interest rate for 4.625% mortgage?

With that being said this appears to be a time when consumers will seek home equity mortgages. And that is why a 2nd mortgage is so appealing to people that need cash for house repairs or need relief by consolidating credit cards into an affordable mortgage. Not to mention 2nd mortgages and home equity lines of credit are tax deductible in most cases.

Frequently Asked Questions About Second  Mortgages

Can I qualify for a 2nd mortgage if I have poor credit? Credit is a subjective term, so it depends on how you define “poor credit.” It is important to realize that if you have low fico scores then you will other compensating factors. Foe example, if you have a 580 credit score but you have a verifiable income a low debt ratio and more than 25% equity, then you may be eligible for a sub-prime home equity loan from a private lender. If you have a really bad credit score but have more than 30% income, you may qualify for a hard money 2nd mortgage.

How much equity do I need to qualify for a second mortgage? Over the last few decades people with good credit scores (above 680) could borrow an additional 25% equity beyond what their house was appraised for. Of course the borrower needed to supply the lender with complete income documentation and the debt to income ratio typically needed to remain below 45%.

What is the difference between an equity line of credit and a 2nd mortgage? Technically an equity line of credit is a second mortgage, but in this context most lenders are defining a home equity line of credit as revolving  credit that the borrower pays interest only on the portion they use. Usually a credit line or “HELOC” is set with an adjustable interest rate that can change annually. These are very popular with homeowners that are financing house improvements and construction in which the funds will be used over-time. A “2nd mortgage” is typically referred to as an installment loan in which all of the money is extended to the borrower up-front. These typically carry a fixed interest rate for a specific period ranging from 10 to 30-years. Homeowners who are consolidating debt or variable rate loans should choose a second mortgage with a fixed rate so they know exactly what their monthly payment will be.

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The home financing industry has been aided significantly by government loans like FHA. First time house buyers have relied on FHA financing for several decades because of minimal down-payment and credit standards. With interest rates ticking upward and home sales stagnant many mortgage professionals are beginning to wonder if the housing recovery is over. The fact is that most conventional and government finance sources on the secondary market have tightened their lending guidelines. Conforming lenders are seeking higher credit scores and more equity for people refinancing in most cases.  We see the trend steering towards a smaller pool of qualified borrowers.

Will the Purchase Market Heat Up Again in 2014?

Home buying is more aggressive with credit for first time house buyers that seek FHA mortgage products. Of course borrowers will have to pay the upfront costs as well as monthly mortgage insurance. But many new home buyers simply see the down-payment and mortgage insurance as a trade-off to become a homeowner while house prices are still relatively low. The idea is for these borrowers buying real estate insured by FHA to earn equity quick when the market surges so they can refinance into a home loan that does not require mortgage insurance. Will that happen soon? Nobody knows but it appears the Federal Reserve will keep the rates artificially low at least through 2016. Read FHA Home Loans Programs Safe

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After getting hammered for years from special interest groups, banks and lenders, the Federal Housing Administration has announced they are loosening credit standards on federally insured mortgages under the FHA finance program. The Department of Housing and Urban Development has worked with the FHA in an effort to simplify the process for borrowers that recently defaulted on their home loans to get a second chance. To qualify for this revised FHA loan program for people with poor credit, applicants must be able to document that their loan default, short-sale or bankruptcy was caused by economic factors beyond their control. According to the LA Times, people must be able to show the underwriter that their income dropped at least 20% for at least six months.

Get a Second Chance with FHA Home Buyer Loans for People with a Bad Credit History

People that have the ability to document the income dip, job loss or reduced business income now would be required to document 1 year with on-time housing and credit-card payments prior to applying to finance a house with a FHA home purchase loan. In a recent HUD bulletin, the Federal Housing Administration introduced this aggressive FHA home buyers loans.

FHA also mandated that borrowers interested in this bad credit FHA mortgage must attend house counseling from an approved agency outlined by HUD. In the past, people were not eligible for a FHA mortgage programs for 3-years after a home foreclosure or 2-years after a chapter 7 or 13 bankruptcy.

Other Lending Highlights

In a recent interview, FHA Commissioner Carol Galante said, “What we’ve did here is to say, ‘Let’s look at the Great Recession and financial crisis with that lens,'” Galante said. “We want to recognize and distinguish between Americans hindered by that very serious circumstance beyond their control versus borrowers that may have run into problems because they maxed out their charge cards and fell behind on their payments.” As the economy started getting better we were hearing about more and more people whose access to credit moving forward was being stifled by the situation the country has been through,”

Many people in the industry had been anticipating that HUD and Congress would tighten guidelines more because of the low reserves and increased delinquencies, so this announcement of expanding guidelines for FHA mortgages for people with bad credit. Many lenders and brokers believed that HUD would raise the 500 minimum credit score requirement as well as increase the down-payment requirement from 3.5% to 5%., so the fact that this isn’t happening is great news for loan originators and home buyers nationally. Read the original LA Times Article.

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Did you know that over 70% of homeowners that are eligible for the “Home Affordable Refinance Program” have taken advantage of this government backed refinance program? It’s pretty shocking that there are people out there that have 5 and 6% rates on underwater mortgages and they have not reached out to HARP lenders for a solution that guarantees a fixed rate solution with a lower interest rate and reduced monthly payment. The underwater mortgage refinance has already helped over a million homeowners secure a competitive fixed interest rate, even though the borrower owe more on their mortgage than their property is appraised it.

I asked a few seasoned loan veterans how this could be. There theory is that many homeowners are not aware that they are eligible for no equity home refinancing. Despite massive marketing campaigns on radio, television and direct mail, many homeowners are simply out of the loop. The HARP 2.0 will not last forever, so hopefully these homeowners will be reached so that they can realize the benefits of refinancing underwater loans. If you are a homeowner that closed your last home loan prior to June 1, 2009 and your mortgage is owned by Fannie Mae or Freddie Mac, you may be eligible for underwater mortgage refinancing.

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Refinancing to receive money make has been a luxury that most applicants are not eligible for. Over the last few years, “loan to value” guidelines have changed immensely. The same could be said about home equity loan programs as well. It was not that long ago that companies were nearly closing purchase mortgages concurrently with high LTV 2nd mortgages.

How difficult is it to qualify for an equity loan today?

According to U.S. Bank (USB) officials, they have been more careful than in the past with their marketing but home loan practices have not changed dramatically and that the bank continued to extend home equity loans and credit lines even though 2nd mortgage market crashed a few years ago with the housing crisis. Now as the real estate prices have come down and interest rates are at their lowest levels, the applications for home improvement loans are beginning to increase at a rapid pace.

Likely Equity Loan Products to Arise in the New Year:

  • Fixed Rate Home Equity Loans with People with Fico Scores > 720
  • Credit Line Extensions for Home Repairs
  • Installment Loans to Refinance 2nd Mortgages and Credit Card Debt

During the real estate bubble, many homeowners were cashing in their property’s equity like a charge card. Income documentation and a healthy amount of collateral often were often considered optional underwriting requirements. Houtan Hormozian of the Orange County Association of Mortgage Professionals was quoted, “House prices were going up but since the market crashed, the rules for home equity credit lines have tightened significantly. Hormozian continued, “They are being more careful about who they are giving that mortgage to.’’

Many Orange County lenders believe that more competitive lending options are on the horizon. Home equity guidelines may be eased in 2013 and 2014 if private money sources re-enter the marketplace. BD Nationwide believes that home equity programs that present a low risk for banks will inch their way back into the market-place sooner than later. Look for more 2nd mortgage options in the coming months depending on election results.

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As the elections draw closer, there is no doubt that the housing market will continue to be a paramount issue that both Obama and Romney will attempt to champion. The two leading forces that have been driving the mortgage market this year have been the record low rates and the Home Affordable Refinance Program also known as HARP 2.0. Millions of homeowner want to know—Is HARP 3.0 on the way?

Although gas prices have been soaring higher, Obama has the lowest home mortgage rates to boast about as the President makes his case for being reelected in November. The current 30-year mortgage rates sit at 3.5% for fixed interest programs from Fannie Mae, Freddie Mac and the FHA.

Romney remains positive in his speeches as he make his case for a faster recovery in the housing sector. Meanwhile, the Federal Reserve recently signaled that more bail-outs could be coming and Wall Street is has been like a see-saw lately with very little consumer confidence seen in the private sector lately.

The HARP 2.0 has seen mixed results so far this year. There are thousands of homeowners that have lowered their interest rate because of the HARP refinancing program. However, there have been thousands of Americans that did not meet the eligibility requirements and thus were turned away.

We continue to hear talk of the HARP 3.0 coming in 2013 that would look to help more homeowners that could not be reached in the second program. It’s no secret that lenders would welcome the HARP 3.0 if it truly helped by borrowers without increasing the lender’s risk.

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Over the years, homeowners have chosen home equity loans for cash back purposes for many reasons. First of all home equity loans also known as 2nd mortgages have been accessed easily by a high percentage of homeowners. Second of all, equity mortgages are a great source for financing because interest rates are lower than credit card rates. Credit card companies are also less likely to approve loan amounts as large a mortgage lender would on a secured second loan.

Compare 2nd Mortgage Loans Online for Home Improvements, Consolidation and Cash Back

Another significant benefit for a 2nd mortgage over a credit card is the fact that the interest on the mortgage is deductible up to $100,000 in most cases, whereas the interest on credit cards is not deductible. For the last few decades, homeowners have enjoyed taking out home improvement loans to remodel or make repairs to the property. Up until recently making improvements to a home would increase the home’s value, but the current housing crisis has hindered that luxury.

Home loans for bad credit have not been as easy to come by this summer, but many insiders believe that will change as more private money lenders get back into the lending business. However getting a bad credit 2nd mortgage is next to impossible these days because the soaring defaults rates have made second mortgage lenders uneasy about extending money in loan to value situations.

According to recent sources second mortgage loans continue to be a problem as defaults continue to mount at a record pace.  Unfortunately for 2nd mortgage lenders, they are still defaulting at a higher rate than first mortgages. Refinancing a 2nd mortgage may be difficult if you are late on your loan. Negotiating a buy-out may be an option, as some second mortgage lenders have been agreeing to “pennies on the dollars” in some cases.

With interest rates falling to record lows again this year, you can see why equity mortgages have become such a hot commodity. The Federal Reserve won’t be able to keep key rates low for much longer, so our experts suggest reviewing quotes from 2nd mortgage lenders now if you are serious about borrowing money without refinancing your present loan.

Rates on Equity Mortgages and Lines Remain at Record Lows!

Taking out a second mortgage may not be as easy as it was a few years ago, but millions of homeowners continue to choose home equity lines over credit cards and unless the IRS does away the interest deductions, there is a good chance these equity mortgages will remain a popular financing vehicle for homeowners to access quickly and cost effectively. Read more about deducting interest on home equity liens from the IRS.

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