Assessment

• Pull a recent copy of your credit report. You may also want to pay for your FICO score (a three-digit number ranging from 350 to 850) to determine where you are on the credit spectrum. Look for any negative marks like charge-offs, delinquencies, and liens. These will lower your score and your chances of obtaining a low, fixed-interest second mortgage. Also, review your secured loan (like car loans and your first mortgage) payment history. Most lenders weigh these payment histories more than unsecured debt payment histories.
  
  

Analyzing Income and Equity

• You must have sufficient income (for repayment) and equity in your home to get a fixed-rate second mortgage. Play with a mortgage calculator to determine a realistic mortgage payment on a second mortgage. Using this payment, do a rough debt-to-income (DIR) calculation. Divide your monthly expenses (including the proposed second mortgage payment) by your gross monthly income. Most lenders want to see a DIR less than 45 percent. Also, do a loan-to-value (LTV) calculation. To do this, divide your mortgage balance (including the balance of a proposed second mortgage) by the value of your home. Some lenders will not go above 95 percent LTV. You must have excellent credit to go to 100 percent LTV.
  
  

Researching Lenders

• If you have excellent credit (a FICO score above 720), a DIR under 40 percent, and an LTV under 85 percent, look at local banks and credit unions -- these institutions will have the most competitive interest rates and second mortgage programs. If one of these characteristics is weak, you may need to research finance companies as well -- like CitiFinancial. These companies may charge a bit more in fees and interest for fixed-rate second mortgages. Get at least two to three offers so you can do a side-by-side analysis. Choose the program that best meets your needs (consolidation, lower interest, cash out, or home improvements).