Also, make sure to include all the income you have. If you have any equity in any stocks or other financial accounts, make sure to mention that to the broker as well.

The more money you can put down on the loan, the more likely it is that you can get approved. FHA loans usually only require 3-5% down. They are also usually open to working with people with credit problems.

Basing the Mortgage on Equity

Some lenders will be willing to base the amount of your loan on the amount of equity you have in your home rather than your ability to repay it. This can cause missed payments, defaulted loans, and possibly even loss of your home. Always make sure that you will be able to afford the combined payments on both your first and second mortgages.

Ignoring the Repayment Schedule

Some lenders will only require you to make monthly payments on the interest of your second mortgage. At the end of the loan, the borrower is then responsible for a balloon payment—the entire amount originally borrowed. Unaware borrowers then have to refinance that original principal amount and pay interest on it for an additional term.

Not Comparing Lenders

It easy to go with a lender you know, possibly even the lender who financed your first mortgage. However, it's always best to get several quotes from different companies in order to ensure you're getting the best interest rate. A higher interest rate could cost you thousands of dollars over the life of the loan.

Recommended Second Mortgage Lenders:

These are the Best of the Best:
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The average rate of interest on mortgage loans continues to fall and has been under 5 percent for almost all of this past year, with this recent round of rate cuts seen as the lowest for borrowers in years. The reason, many borrowers today have bad or at least less than perfect credit scores. Still a borrower with less then perfect credit an jump through a few hoops and get a fairly decen rate on a loan.