With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.
Dori Zinn Loans WriterWith nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.
Written By Dori Zinn Loans WriterWith nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.
Dori Zinn Loans WriterWith nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.
Loans Writer Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
| Mortgages and Student Loans Deputy Editor
Updated: Aug 23, 2024, 5:17am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Getty
Buying a home is an expensive undertaking and for many, it’s the largest financial purchase they’ll make. For most buyers, it means taking out a first mortgage and making monthly payments until your loan is paid in full.
A first mortgage is the loan you initially borrow to buy your home, whereas a second mortgage is a home equity loan or line of credit taken out against the value of your home without refinancing.
Mortgages can come with various terms. You can pay a fixed rate for as little as 15 years or up to 30 years. You can also get an adjustable-rate mortgage (ARM), where your rate fluctuates based on market conditions. Your specific situation typically determines which option is best for you.
When buying a home, you can pay in full with cash or take out a mortgage. Most borrowers can’t afford to pay for a home up front and use a home loan to finance their home.
After you complete a mortgage application, receive approval and close on the home, your lender sends you paperwork to set up monthly payments.
Technically, your lender owns your home while you make monthly payments and live on the property until you repay your mortgage in full. If you miss payments and default, your lender can place a lien on it and possibly foreclose. This could mean you lose your home as your lender takes possession of your home.
Your mortgage is a legally binding contract that says you’ll make on-time monthly payments to repay the loan. This amount comes from the principal balance, plus any interest, fees, insurance and other charges. While your lender and servicer can change over time on the secondary mortgage market, your loan terms won’t change unless you refinance.
If you refinance your first mortgage, you’ll get new terms, along with a new interest rate. However, that refinanced loan now becomes your first mortgage.
A first mortgage can take many different forms, depending on the type of home loan you take out.
Private lenders offer conventional mortgages, which are the most popular mortgage option. Even though the requirements vary by lender, they tend to have some common minimum requirements.
For most borrowers, you can take out a conventional loan with a credit score as low as 620 without having major credit concerns, such as bankruptcy or prior foreclosure. While having a 20% down payment eliminates private mortgage insurance (PMI), borrowers with stronger credit profiles can still get approved with a down payment as low as 3% to 5%. We recommend keeping your debt-to-income (DTI) ratio below 43% (although some lenders accept up to 50%).
FHA loans are insured by the Federal Housing Administration. While the FHA is a government agency and not your direct lender, it works with private banks and other financial institutions offering these loans. FHA loans are best for borrowers with lower-than-average credit scores and those who have down payments as low as 3.5% of the home price.
Like FHA mortgages, VA loans and USDA loans are also backed by government agencies—the Department of Veterans Affairs and Department of Agriculture, respectively. Both loans require no down payments, but they do have other specific requirements to meet, such as being a service member or purchasing a home in a particular area.
Jumbo loans have larger lending larger than what’s set by the Federal Housing Finance Authority (FHFA). They’re nonconforming conventional loans and, because of their higher loan amounts, you might need to meet more stringent qualification requirements set by your lender.
Your first mortgage is your primary mortgage, while your second mortgage is a home equity loan or line of credit that you can use to fund other projects or needs, like home improvements, renovations, repairs and similar expenses.
Your second mortgage usually comes based on how much equity you have in your home, letting you use what you’ve already paid off on your home to fund new projects. A cash-out refinance is not an example of a second mortgage.
Both first and second mortgages can have fixed or variable interest rates, depending on the type of loan you borrow. For example, home equity loans have fixed rates while HELOCs have variable rates.
Interest rates are usually higher on second mortgages compared to first mortgages, but both depend on your credit profile and how much you want to borrow.
When you complete an application for a first mortgage, your lender calculates how much you can afford to borrow. For second mortgages, your loan limit is based on how much equity you have in your home, up to a certain percentage. You can typically borrow up to 85% of the equity you have in your home.
If you’re unsure how much you can borrow, use a home equity calculator to calculate your home equity.
If you default on your first mortgage, your lender could seize your property and foreclose on your home.
If you default on a second mortgage, a lien is put on a portion of the home you’ve already paid off. While your first mortgage takes priority, failing to repay your second mortgage can trigger your lender to take legal action. For instance, your lender could try to foreclose on your home.
Check your rates today with Better Mortgage.
Was this article helpful?
Share your feedback Send feedback to the editorial team Thank You for your feedback! Something went wrong. Please try again later. Buying Guide
By Caroline Basile
By Caroline Basile
By Caroline Basile
By Caroline Basile
By Caroline Basile
By Caroline Basile
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Loans WriterWith nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting a budget or starting to invest. Her work has been featured in the New York Times, Wall Street Journal, CNN, Yahoo, TIME, AP, CNET, New York Post and more.
© 2024 Forbes Media LLC. All Rights Reserved.
Are you sure you want to rest your choices?The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources. First, we provide paid placements to advertisers to present their offers. The compensation we receive for those placements affects how and where advertisers’ offers appear on the site. This site does not include all companies or products available within the market. Second, we also include links to advertisers’ offers in some of our articles; these “affiliate links” may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor. While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our partners who offer products that we have affiliate links for.
