When applying for a home loan, it is extremely important to avoid pitfalls and to collect the necessary information you need in order to choose a lender that provides advantageous terms&conditions. First of all, avoid signing a contract with a loaner that doesn’t provide clarity of terms, as it is crucial to perfectly understand what you’re signing for and have everything explained before signing the contract. Any ambiguous or unclear terms might is likely to indicate that the loaner is not trustworthy and reliable, so you should look somewhere else.

Not getting a loan pre-approval is another pitfall you should avoid when applying for a home loan. You should know for sure if you are eligible for the loan you plan to obtain, given the multitude of factors and criteria the approval is based on. Don’t get all too excited of having found the house of your dreams but no lender to give you the money you need because you have a bad credit score or bankruptcies on your credit history. Make sure you are not wasting time and money looking for a house you’ll not be able to pay for.

Also, pay close attention to the interest rate on your loan. Find out what you will be charged after the initial rate period expires. Usually, this happens after maximum three years, after which you will be charged the prime rate at that specific moment, plus additional fees. It should be all in the contract you’re signing, so make sure you avoid these pitfalls when applying for a home loan.

This past week has been a rough one for some of the people I have talked to, all of who have multiple houses and are paying their bills and mortgages on time.  The issues have to do with being self employed and not showing enough income on taxes and wanting to refinance a second home for cash out.

Since every loan is basically a full documented loan these days it means that you have to prove your income.  There is no more stating an income or doing a no-doc loan.  These loans, at least for now, are a thing of the past and no one expects them to come back any time soon, if ever again.  Lenders want to see income and it needs to be income that has come in over the last 2 years, or capital gains income that has been consistent for 3 years.

The other restrictions have to do with cash out refinances.  There are no cash out refinances for second homes, period.  The only loans that you can get above 85% cash out are through FHA and they are still at 95% though we have heard that they are lowering it to 85% as well.  We just don’t know when.  So if you think you are going to take advantage of this low interest rate, you may want to think again if you can’t prove your income, meet the debt to income ratio or try to get cash out with little or no equity in your home.  It can be a tough row to hoe and the only way to see if you can qualify is contact your lender and go through the motions.