Q & A with Dottie Herman

» Featured Columnists | By Dottie Herman | July 29, 2011 9:30 AM ET

Q1 - What is involved in taking a second mortgage? How are the payments structured? Can I use that to divide my current payment in half for a period of time? We are going through a rough patch.

A - A second mortgage is a mortgage that has a fixed monthly payment schedule, just like a first mortgage, only the maximum term is usually 20 years.  Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Because second mortgages are riskier for lenders, they generally come with a higher interest rate than first mortgages. You would then have two monthly mortgage payments, and it does not sound like this was the intent of your question. You would have to qualify for the second mortgage by having enough income, assets and equity in your home to meet the lender's underwriting criteria.  As far as using a second mortgage to cut your first mortgage payment in half, I've never heard of this practice being done.  The only way to lower your first mortgage payment for a period of time would be to speak to your lender about the possibility of a loan modification. In any case, let your lender know about your current situation and discuss what options might be available.  Good luck!

Q2 - My husband and I bought a house and I think we over-stretched a bit. We both took pay cuts at work since the purchase 2 years ago. It has become difficult to make our mortgage payments as well as all of our other monthly bills. Is there anything we can do?

A - Yes, you may qualify for a loan modification if you meet certain criteria. There are at least three elements that must exist to make a homeowner a good candidate for loan modification: Desire to keep the house, experienced a financial hardship, and have sufficient income to pay a reduced monthly payment. Some examples of hardship include loss of Income, medical issues, death in the family, divorce, or anything outside of your control which has caused you to be in a difficult financial situation.  It is very important to contact your lender and let them know what is going on so that they can discuss your options and help you get back on your feet.  Good luck.

Q3 - How much are typical closing costs?

A - New York's relatively high title and settlement costs are among the highest in the country. Mortgage closing costs are fees charged for services that must be performed to process and close your loan. At the time you apply for a loan, lenders are required by law to disclose to you, in writing, what the estimated mortgage closing costs will be. This is known as the Good Faith Estimate. Closing costs can vary by type of mortgage  and amount, so the costs on a 30-year fixed or a 15-year fixed may not be exactly the same as a 5-year ARM mortgage. And some loans, such as an FHA loan or a VA loan actually allow a seller to cover all or some of the closing costs. Average closing costs are about 5% of your loan amount.

Q4 - How do I know which loan is right for me? A 7 year has a lower rate currently, but am I better off staying safe with a 30 year fixed?

A - Before you are really ready to make an offer on a home, you should have your financing in order.  You should to contact your lender who will help you get pre-qualified for your loan and will recommend the right type of loan based on your circumstances.  There are many factors that go into choosing your loan type:  How much do you have for a down payment, what is your credit score,  how long do you plan on staying in that home?  These and other questions will be asked by a mortgage professional who can then guide you toward making an informed decision based on your circumstances, your needs, and your qualifications.

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