+ 100% FREE
+ Unlimited Credit Reports
+ Unlimited Credit Scores
+ Credit Monitoring Protection
+ Credit Improvement Tips
+ Automatically Finds Savings
No credit card needed
There are a lot of people who ask whether their second mortgage can foreclose and the simple answer is that they absolutely can. However, there are some variables that affect that decision. You should understand that your second mortgage is not the primary collateral holder; the first mortgage would hold have honor and the first mortgage will always receive its funds if the house is foreclosed before others get what’s left.
If you are paying your first mortgage regularly and simply cannot afford the second mortgage, whether it is a home equity loan or a home equity line of credit and the property is underwater, the odds that the second mortgage will foreclose are slim to none. If they took the home and sold it, they would have to pay off the first mortgage and what is left would be theirs but since the value is less than the first mortgage, they’ll get nothing. It’s not worth their time. In this scenario they do have the option to not foreclose and simply sue you for the debt as well as all expenses which can be a large sum and damaging to your credit.
If your home has some equity in it, meaning the amount owed on the first mortgage is less than the home’s value, they will more than likely foreclose if some form of payment arrangement cannot be made. If this occurs, they will settle the debt owed on the first mortgage and the additional money from the equity is theirs to reduce or pay off the second mortgage. In this scenario, they recoup some, if not all of their loan to you.
As you can see, the second mortgage holder can foreclose on your home if they have an opportunity to recover any monies from the sale. If there is no possible way for them to make it worth their while to foreclose, you are more than likely going to be sued for the debt. Considering this can damage your credit severely, it is always wise to try and work out some form of repayment that you can manage if you are behind on a second mortgage.
When you consider a home loan based on your equity in the property, you have two choices. There is the home equity loan that most people understand. You borrow money for a specific need, receive the check for the full amount and pay back the loan in monthly installments as you would your mortgage or car loan. Your second option is the home equity line of credit or HELOC as it is referred to in the financial industry. These are far more flexible and the interest rate varies over the term of the line of credit, often it will be 5 to 20 years in the current housing market.
The HELOC, or home equity line of credit works in the same manner as your credit card accounts do. You will apply for the loan. If you are approved, the amount will be based on your equity in the home and offer you 80%. An example would be that your home is worth 200k and you only owe 100k. You have 100k in equity which leaves you with a home equity line of credit of 80k.
The reason that these are favorable among many homeowners is that you do not receive the lump sum and do not even have to use it immediately. If a year from now you need to use 20k of the line of credit you will borrow it and make your monthly payments. As the principal is paid down, the remaining line of credit increases until you pay off what you borrowed. The line of credit is whole again to be used on another rainy day. If you are already paying on your HELOC loan and you require emergency funds once again, the remainder is still in the line of credit to use as you feel necessary. This is the main reason people prefer these over a home equity loan.
Understand that with a HELOC or home equity line of credit, there will be money available throughout the term unless you pull out the entire amount. As you pay down the principal, you simply replenish the pot for additional use until the loan is due. At that point, any outstanding debt needs to be repaid.
Many homebuyers like to take advantage of deductions that are offered by the I.R.S. and PMI was no exception from the years 2007 until 2013. PMI, private mortgage insurance, is often required by the banks to protect them against a default on the loan. The homebuyer is required to pay for this and should in all fairness be able to use it as a deduction on their taxes. This deduction could be discovered in the I.R.S. Schedule A documentation under interest payments.
There are some restrictions for the full deduction involved, including an AGI of less than 100,000 dollars for all taxpayers outside of married filing separately. In that case, the cutoff was 50,000 dollars on the full deduction. The deduction decreased a staggering ten percent for every 1,000 dollars that was above the AGI’s listed above. The deductions were allowable to anyone who purchased or refinanced a home between 2007 and 2013.
At the time of this writing, the PMI deduction has not yet been extended for the 2014 tax year. This means that you will not be able to claim PMI insurance on your 2014 tax returns unless Congress steps in and extends it though this year or passes a new bill that includes the deduction.
This has a huge impact on many homebuyers and was only one of many deductions that expired at the end of 2013 for homeowners. If you are paying PMI insurance you can talk to your mortgage company and see if it can be dropped or even if refinancing would be an option to offset the loss of this deduction by lowering your overall costs.
When asking what a home equity line of credit is we need to point out that a HELOC, as it is called in the industry, is different than a home equity loan. A home equity loan is where you apply for a lump sum to use towards certain needs you may have at that particular time. Once you receive the check, you spend it and pay back the loan monthly with interest. A home equity line of credit differs in that you are being offered a lump sum in the form of credit that can be used at any time during the term of the loan and you only pay back what you have used plus interest.
To simplify a HELOC with an example would go like this. You have 50,000 dollars in equity in your home and decide you need to fix your roof. You apply and are approved for a HELOC in the amount of 25,000 dollars for a 15 year term. This money will be the line of credit you draw upon to fix your roof that costs 5,000 dollars. You then take 5k from your line of credit and won’t be touching the rest to pay the bill. You will then pay back the 5,000 dollars plus interest through monthly payments and still have plenty on your line of credit if you need to use it sometime over the years for more repairs.
The downside to a HELOC is that your home is the collateral and there can be a few negatives to that in some cases. If you default on your line of credit payments, they can foreclose on your home. The negative aspect that is completely out of your control is that a decline of the housing market and value of your home by 50 percent, as we saw during the housing crash, can lead to your line of equity being frozen by the bank. This is a slight possibility so consider your area's housing market value before going this route.
Outside of those two negatives, a HELOC is a great way to have money at your disposal for any unforeseen issues that may arise in the future. It can be easier to handle financially as well considering you are only paying off what you use, as opposed to a lump sum as you would with a home equity loan.
Title insurance is a must have for any homebuyer. There are also several reasons to make sure that you have it. It protects you and your lender from issues that may arise with claims against the property. These may be due to mistakes on paperwork, liens against the property that the former owner neglected to inform you of, improper recordings of the deed, disputes against rights of access and in a few cases, fraud that would include identity theft among many other legal issues that can arise at any time.
You are being charged a fee for title insurance because your lender requires it in order to protect the loan they have given to you, in case a claim should arise during the term of the mortgage. There are two forms of title insurance. The loan policy is designed to protect the loan amount of the mortgage and reduces in value as the loan is being paid off. When the house is finally paid in full, the policy has no value in coverage for them. This protection guarantees the lender will have zero issues if a claim is filed by a third party in the case of foreclosure or some problem with the deed of property or title.
The second form of title insurance is called an owner's policy and this is often required by the lender as well. Where this becomes beneficial to you is that the owner's policy covers the full loan value. It is purchased at closing in full and remains in effect as long as you or your survivors own the property. The insurance will also ensure that if at any point a claim is filed, legal expenses are covered and you are not heading into bankruptcy fighting off a claim against the title.
Hopefully you now understand the importance of title insurance and why you had to pay the fee. It is strongly recommended that if you are unsure about the details of the title insurance you are paying for, contact the title company immediately to find out the policies your fee covers. In some areas of the United States you could be paying for the loan policy as well as the owner's policy, while in other areas the bank picks up the note for their coverage.