How to Take Out a Second Mortgage for a Remodel

Research lenders to compare rates of interest, repayment terms and closing costs on a second mortgage before applying; these can vary greatly among lenders. Avoid any unnecessary fees by asking up front what costs are added at the closing for a title search, property taxes or title insurance. While you can look at individual lender websites for this information, several websites -- such as Bankrate.com or Lendingtree.com -- allow consumers to compare various lenders at once, saving time.

Prepare the documents you will need to submit with an application to the lender of choice. This will include: 1) tax returns for the previous two years; 2) a financial statement that shows your current assets and liabilities to give a picture of your net worth; 3) a description of the home; 4) a copy of the remodeling plans for which you wish to obtain a loan; 5) a copy of any contract with a third party contractor that would be doing the work; and 6) a plan showing how you intend to pay back the loan to the lender.

Discuss various loan options with the lender before submitting an application. A home equity loan (HEL) gives homeowners a lump sum of money, with a fixed monthly payment schedule over a certain period of time. A Home Equity Line of Credit (HELOC), however, operates like a credit card. A predetermined limit is granted, and the homeowner can write checks or use a card on the funds when they are needed. A minimum payment is required each month, but funds can be paid back sooner as well.

Submit an application to the lender of choice. Complete the application in full, making sure not to omit any pertinent information about your financial situation. The lender will be running an examination of your credit history. Explain up front any discrepancies that the lender may find in that report to give full disclosure, and state your side of any problems with other credit lenders.