by Richard Lloyd Evans

Created on: September 28, 2007

In the market for a home but worrying if you qualify for a mortgage? Knowing how lenders determine whether you qualify for a mortgage can give you a step up on getting the best deal on your dream home. Here is a quick guide on what lenders are looking at:

CREDIT SCORE

The first thing all lenders look at is your credit score. Most lenders usa a score known as FICO, a computer-based scoring model that ranges from about 360-900. 800 is a dazzling number to lenders. A score in the 700s is good. Scores in the 600s are slightly more trouble but if your score is down in the 500s or lower - financing will be tough to get, and very expensive.

The FICO formula grades five areas of your credit history. Past Payment History, Outstanding Debt, Length You've Had credit, New Credit Applications and Types of Credit you have all go into raising, or lowering, your score. Two key areas you can improve your FICO is to not make a lot of credit applications, and make sure all your payments have been current for at least the last several months.

CREDIT HISTORY

Lenders will consider any problems you may have had in the past. Most lenders are loathe to see current court judgments or any accounts showing a current past due. You are almost always better off trying to get everything paid off and settled before you apply for a mortgage. Also, any application that shows a past history of foreclosures or bankruptcies will get a much more careful scrutiny, even if the problems were many years ago.

JOB STABILITY

Lenders like to see borrowers with a steady history of 2-3 years in their job - or at least working in the same profession. If you've just changed jobs or professions, they will be worried that your job might not work out.

RESIDENCE STABILITY

Another important factor for many lenders is stability in where you live. Have you already owned a home? That's great but what concerns lenders is that you don't move too often. They would like to have their loan out for several years making them a profit. A history of moving every 12 months cuts into their profits, and makes it a less desirable loan for them.

INCOME

DO you make enough money to make the loan payments? This is especially critical for the self employed. Unlike recent years where "no doc" loans where the rage, lenders need to see document-able income. bank records, receipts and income tax filings all help prove your income.

DEBT RATIO

How much are you paying in debt now and after the loan? Lenders normally want to see the amount you pay on your

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