We offer various types of mortgages:
FHA, VA, Conventional, USDA
We offer all types of mortgages to fit your needs. Speak with a Mortgage Loan Officer for more information on each type.
First Time Home Buyer (ND/MN)
Purchasing your first home can be scary, but let FCCU guide you along the process and take advantage of First Time Home buyer incentives!
Purchase or Refinance
Whether you are purchasing a new home or want to refinance your current home FCCU can help you out!
A Discussion on Second Mortgages
Many homeowners don’t know it, but their house may be a powerful bit of financial security. Unlike most other large-investment items like cars, the equity you’ve built up in your home over the years can be recognized as a separate, valuable asset.
In this discussion are references to tax benefits that may-or-may not apply to you. It is important you consult a qualified tax consultant to determine how the tax benefits apply to you in your particular situation. Freedom Community Credit Union is not qualified to provide you with any form of tax analysis nor will we be responsible for the consequences of any action you take based upon information provided in this discussion or any other information provided by us.
For those uninitiated to the jargon of mortgages, let’s first determine what a couple of important terms are.
- Mortgage. A mortgage is an agreement between two parties where (in our case) the homeowner agrees to give another party (usually the Credit Union, a bank, or another individual) a “secured” interest in their house in return for some consideration. Typically, this is a loan with regular payments. Upon completion of the payments, the agreement conditions are fulfilled and the mortgage is released. Sometimes a mortgage is used solely as a security tool where no payments are made; this may occur if one were to get a business loan and the payments on the loan are made through the business itself, the bank still holds the house equity “hostage,” but no payments are made against the mortgage itself.
- Equity. This is the difference between what the property is worth and what you owe on it. This is not to be confused with what you owe on a loan and what the original loan amount was. Your property may have increased in value due to property improvements, economic inflation, and/or rising property values in your neighborhood. For example, let’s say you paid $70,000 for your house fifteen years ago and now have a mortgage balance of $25,000. After fifteen years of inflation and rising property values in your neighborhood, you may have a $105,000 house now. Your equity in the house, then, is the difference between what you owe on the loan and the current value of the house, or about $80,000 in this example.
How the Second Mortgage Works
Let’s say you’re having a time with trying to fit two cars into your tiny garage. Checking around, you find a new garage that fits your needs is $10,000. On top of that, the appliances in the house are in serious need of updating as are the countertops and cabinets in the kitchen. There might also be a couple of high-balance credit cards you’d like to pay off and get rid of, too, so it looks like you’ll need about $25,000 to get the debt taken care of. Finding a loan to cover something like this at a decent interest rate is pretty tough, so why not consider a second mortgage?
A second mortgage allows you to use the equity you’ve built up in your home over the years as a means of getting that necessary cash while enjoying a lower interest rate than you’d find through consumer loans (Freedom Community Credit Union charges 7% with a maximum of 10 years on second mortgages). Often, interest paid on second mortgages have the added advantage of being tax-deductible at the end of the year.
To get a second mortgage, you’ll be better prepared if you understand the process involved. Like a first mortgage, a second mortgage requires a considerable amount of documentation to accomplish. Fortunately, most of this is handled by the mortgage loan officer you’ll deal with at our Credit Union. Essentially, the loan officer needs to accurately determine:
- Your income. Because of the long-term nature of second mortgages as well as the financial commitment, the Credit Union needs to know as much as they can about your income level and stability.
- Your assets and debts. An accurate accounting of what you own vs. what you owe money on will help determine how healthy you are financially.
- Your home’s true value. Unlike automobiles, airplanes, and recreational vehicles, homes are unique properties with unique qualities where a “blue book” for a typical home won’t work. Some means of determining the value of the house is necessary so the Credit Union knows how much it can lend you without exceeding accepted levels of risk.
- Liens and legal matters. Legally, the Credit Union has to determine, through an independent source: precisely what property (ie: legal descriptions and such) they are loaning the money on, whether anyone else (besides your first mortgage holder) has any claims against the property the Credit Union needs to be aware of, whether the property lies in a flood plain that would require extra flood insurance not typically covered by normal homeowner policies.
To determine this information, we need some accepted forms of verification that you can put together before you come in to see us. A lot of time can be saved for you if you gather up some of the following items:
- The latest copy of your annual property tax statement. This is a simplified method of determining the value of the property and gives a good starting point from which to begin to assess the loan you’ll qualify for. As a rule, the combination of a first and second mortgage together can’t exceed 80% of the home’s value. Property tax statements typically show a lower-than-appraised value (they are based on older appraisals that don’t accurately adjust for inflation), which means if the first-and-second mortgage combination hasn’t reached 80% of the tax statement, you’ll be well within the guidelines. If it looks like you’re exceeding 80% of the tax statement, then an accurate appraisal may be required. The tax statement, though, is a good starting point and may be all that’s required for the second mortgage.
- W-2 Forms. To determine family income, all the W-2s for the previous two years should be brought in to provide accurate income source information.
- Bank statements. We can better improve our understanding of your financial position (assets, debts, etc.) if you can provide bank account information for the past two months.
- Pay stubs. These provide the latest income information so we can account for any income changes (up or down) that may have occurred since your W-2s were issued. These should cover the past two months.
Now that you’ve approached your mortgage loan officer with the above information, an early assessment of your second mortgage can be accomplished. Assuming you qualify for a second mortgage, you should know some of the legally-required fees that come with these and other real estate loans (they’re known of as “closing costs”):
- Appraisal Fee: This fee is charged by a professional home appraiser.
- Abstract Update Fee: This fee is charged for an independent service to determine any legal changes/liens/encumbrances that have occurred to the property since a similar search was conducted on some previous occasion.
- Title Opinion Fee: This fee is charged by an attorney to review legal information on the property to determine if any legal problems exist with the property that might adversely affect the mortgage.
- Recording Fee: This is a fee charged to make sure all the government and legal people involved with maintaining records on property transactions get properly notified with the proper documents.
- Flood Certification Fee: This is the fee charged for a government office to certify the property does/doesn’t sit in a flood plain.
- Origination Fee: The second mortgage is very labor-intensive as compared with most other loans and it costs us a considerable amount of money to process them. For this, we charge a percentage-of-the-entire-second mortgage amount to complete the loan.
While the fees seem like a lot of money to shell out when you’re looking for a loan, it should be noted that this money can be included in the loan so you pay a couple of bucks a month over the life of the loan for it.
A second mortgage is an economical means of cleaning up bills, fixing up your home, or what-have-you. It requires a lot more preparation and effort to complete than a typical consumer loan, but the interest savings and possible tax benefits may be well worth the effort.
If you’ve been considering a second mortgage, your Credit Union staff will be happy to direct you to a mortgage specialist who can answer your questions.
About Freedom CCU
Welcome to Freedom Community Credit Union, a full-service financial institution with an emphasis toward dealing one-on-one with the individual. Our extensive experience in programs from consumer loans to home mortgages has given us the background to assist you in forging your future. We offer conveniences ranging from Online Services to Nationwide ATM access to accounts and competitive rates.