A second mortgage or HELOC can hurt your chances to refinance your first mortgage. During the refi and purchase frenzy of years gone by, everybody was doing it. Getting a second mortgage on a home was as easy as being handed a toaster oven so why not? Now, those second people used to buy cars, second home, consolidate accumulated credit card or other fun things is now coming to bite them in the butt. Here are five things you need to know:

1. Many people took out second mortgages or HELOC loans to consolidate debt or do home improvement after they purchased a home. If the borrower wants to refinance the first and second mortgages and consolidate them into one loan payment, the second will be considered “cash out” as if it was a credit card being paid off. The lender guidelines are different for “cash out” mortgages in that they require certain FICO scores and loan to values and in order to qualify for the loan. You might not qualify for a new mortgage under the new guidelines, so have the mortgage loan officer run the numbers before you begin.

2. If you took out two mortgages to buy a home, you may now be looking to refinance and consolidate them both into one payment while the rates are still low. However, if you modified that second mortgage in anyway after you bought the house, it would be considered a “new” loan and considered cash out when you refinance. The rules above will apply.

3. Your new first mortgage should not be over 80% of the value of your home to avoid the added expense of Private Mortgage Insurance. The new loan amount of the first mortgage, second mortgage and closing costs need to be under this 80% loan to value. If the value of your home has decrease and it does not, well then you might not be able to refinance.

4. You might choose to refinance only the first mortgage and subordinate the existing second mortgage again. Many people choose to do this if they still want the same terms for the second mortgage or if the value is not there to consolidate them. Two things you need to know before you get started with this. One, the new lender will have certain requirements to keep the second mortgage in place. Typically lenders will not allow the both mortgages to be greater than 85-90% of the home. Two, the existing lender who holds the second mortgage must agree to allow the mortgage to be in second position behind a new first mortgage. Call the service department and what out what the parameter are, the process and cost of doing so. It just might not work or be worth it.

5. You very well might have to continue with a first and second mortgage, either by taking out a new loan or subordinating your existing second. This would be in cases, where the value does not work, your new loan amount is over the conforming loan limits of $417,000 or the loan to value does not work. The loan officer would suggest this based on the current value of your home and other factors.

Mortgage interest rates a great now, but getting a loan is a different story. If you need two mortgages, this makes it even harder. Things to consider before you get started:

· Call the mortgage holder of your existing second and ask them what the process to subordination is

· Know what the terms of your second mortgage are and find out if you ever modified it

· If you used the second to buy the home, find the original note and closing statements, the lender will want to see them

· Go on an online website such as www.zillow.com or call a realtor to ball park your current value

· Know your FICO score

· Figure out how much your new loan would need to be based on the existing first and second mortgage

· Think about if you want to come up with some cash to make up the difference or pay for your own closing costs if need be

· Make sure your new loan goes to a lender that can offer you a second mortgage if you need it, allow you to subordinate your existing second or get a new loan from another lender. The first option is best.

· Make sure you have a good loan officer can that offer you choices, options and the best advice before you get started. The process is long, so find out how much time you need and what the options are.

This is a repost of an article from last year. Sometimes, we do a repeat because it received tons of attention or because we simply can’t think of anything to talk about today.

Happy Monday!