Qualifying for a Mortgage

Unless you have a few hundred thousand dollars burning a hole in your pocket, you're going to have to take out a mortgage in order to buy a house. And you need to make sure that all of your finances are in order so there will be no last minute snags to precent you from buying your dream home.

Let's go over exactly what lenders look at when you qualifying you for a mortgage.

Your credit history. Your lender will pull a copy of your credit report and check it very thoroughly. They want to get a good picture of how you pay your bills and what kind of borrower you are.

Do you pay your bills on time? Do you make a habit of paying them late? How many different accounts do you have open? What are your credit limits for each account and what are your current balances? Do you have any liens against you? Have you ever declared bankruptcy? These are all questions that a lender will want answered before agreeing to loan you money. If you've missed a payment here or there, its not the end of the world. But if you frequently miss payments or pay late, the lender will view you as a greater risk.

They'll also keep an eye on your debt-to-income ratio. If your debt is too high in relation to your income, a lender may decline to offer you a mortgage.

More damaging to your chances of qualifying for a mortgage is a past foreclosure. If you previously owned a home that was foreclosed on, a lender may be reluctant to give you another chance.

You'll also be required to provide proof of employment and income. A couple of recent pay stubs will do the job. The lender will want to verify that you are indeed making as much as you claim to be. If you have only been at your present job for a year or too they may require proof of employment from your previous employer as well.

How much cash you have on hand is another factor in qualifying for a mortgage. Be prepared to share copies of your recent bank statements and retirement plan balances, as well as any stocks, mutual funds, or other investments you may have.

The lender will want to be sure you have enough cash reserves to cover the down payment and closing costs without wiping yourself out.

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