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How to Refinance when you Have 2 Mortgages

Combining Loans

One of the options that you have is to combine the first and second loan into one loan. This is only possible if you have the room in your loan-to-value ratio. If you do not have enough equity in your home to qualify a larger first loan, it will be impossible to combine your loans. Keep in mind that when you fill out the mortgage application, you will need to state why you received the 2 nd mortgage in the first place. If you received it after you purchased your home, it is considered a cash out refinance and you will be stuck with stricter regulations in terms of debt ratios and LTVs making it a little more difficult to combine the loans.

Get a Piggy Back

If your loan-to-value ratio is high, you might be able to get a piggy back loan on a refinance. This is the same as a piggy back loan for a purchase. with the exception that you are not purchasing a home. The first loan that you obtain will be for the maximum amount that you are able to have, typically 80 percent and the piggy back loan will be for

the remaining amount. This is not considered a cash-out refinance as you are not taking out any cash, you are simply refinancing in order to get a better rate and/or term, such as would be the case if you were trying to refinance out of an ARM.

Pay Down your Home Equity Loan

Sometimes in order to be approved for a refinance on a first mortgage, the lender will require that your home equity loan is paid down. This does not mean paid off, but the balance might need to be lower than it is at the moment in order to lower your debt-to-income ratio. Lenders look very closely at DTIs and if yours is close to the limit, it could be denied unless you pay down your home equity loan. Keep in mind that some lenders use the full amount of your home equity loan to figure your DTI as a precaution since you do have the ability to max it out at any time if you are keeping it. If this is the case, paying down your home equity loan will not work and you might have to cancel if it you want to refinance.

Making the Right Decision

Category: Credit

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