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Archive for the ‘Second Mortgages’ Category
What is IRS Form 4506 why does my lender want it?
When applying for a mortgage , your lender may ask you to sign and submit a Form 4506. It is a form we get directly from the IRS which some mortgage lenders may require you to complete as part of your loan application.
What is a 4506 used for?
Form 4506 T, as it is most often requested, is also called a Request for Transcript of Tax Return. This document allows for a copy of your tax return to be obtained from the IRS directly. A mortgage lender may request this to verify your income documentation that you have provided as part of your loan application.
There are a few things to know about it.
- This form may be necessary if you are a self-employed borrower and the lender wishes to see official documentation of your most recent earnings from the IRS.
- This form is also used to detect fraud in cases where there is an apparent discrepancy. If there is some reason the lender does not believe your reported income is accurate, they may take steps to verify it through this manner.
- Many mortgage companies also use this tool randomly within their business. For example, during the course of the day the lender may request a certain number of these documents. This is often for a quality control measure and those who receive the request are selected randomly.
4506 as part of the loan process
The fact that your lender has asked for a signed 4506 doesn’t necessarily mean they suspect fraud or have identified an issue with your loan. It may simply be part of their regular process.
During any loan application, it is necessary for mortgage lenders to verify the information you provide to them. So as a rule, when filling out documents to obtain a loan, always provide the most accurate information. Ensure that all statements you make are accurate and verifiable to avoid any problems with this step or other verification steps the lender will take.
What is a Second Mortgage?
A second mortgage is a home mortgage that you take out in addition to your first. It is a different arrangement from a refinance. When you refinance a mortgage, you simply take out a loan that loan replaces your existing mortgage. A second mortgage is written in addition to your first mortgage so you have two payments instead of just one.
How Does it Work?
A second mortgage functions as a lien against your home for the amount of the second mortgage. You still owe whatever you had left on your first mortgage. The bank merely writes you another mortgage and, because it is secured by your home, it usually has good interest rates. This is the reason that some people choose to go this route instead of refinancing. Refinancing sometimes increases the interest rate on the mortgage and, therefore, a second mortgage is sometimes preferable.
What is it Used For?
A second mortgage is oftentimes used in the same fashion as a cash out refinance. Typical things people use 2nd mortgages for include:
- Paying off undesirable loans, such as credit card debt, and replace those debts with the superior interest rates available on the mortgage loan.
- Property improvements or other expenses that will increase the value of their home over time.
- Trips, vacations, tuition and other short term cash needs
Two Loans Instead of One
A second mortgage is a separate lending product that you’ll have to make payments on. It’s not a part of your regular mortgage, so that may make your monthly finances a bit more complex.
A second mortgage is also tougher to qualify for than a refinance. The second mortgage will also have its own interest rates and so forth, so you’ll have to take this into account when you’re taking out the loan.
Getting a Second Mortgage
Talk to a loan officer at NOLA Lending today to see if you qualify for a second mortgage. If this isn’t an option for you, you may want to consider a refinance, which is much more common these days. Second mortgages were more common in the past than they are today and, because of the convenience and wider availability of refinancing options, most owners go for that type of funding.
