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How Do I Know if I Qualify for a Mortgage Loan?

When a lender reviews your loan application, they'll look at the following factors to determine if you're mortgage-worthy:
  • Income
  • Debt
  • Credit
  • Employment
  • Property or collateral
  • Financial resources used for closing costs

More specifically, your ability to qualify for a mortgage loan will depend on the "Four C's" of Credit:

Capacity to repay the debt depends on your earnings and employment history, expenses, number of dependents, and other obligations you have.

Credit history of how much you owe, how often you borrow, if you pay your bills on time, and if you're living within your means.

Capital, or the amount of cash you have for a down payment and settlement costs, as well as cash reserves to deal with repair or replacement expenses that may arise after you're in the home.

Collateral to protect the lender's investment if you can't repay your loan. The home you buy must be worth enough to back up your loan.

Here are some other key points you'll need to know once you're sure you plan to buy a home: You'll have to meet certain financial standards to qualify for a mortgage. Most lenders want to make sure your monthly mortgage payment (including taxes, insurance, and all other fees) doesn't exceed 28 percent of your gross (before-tax) monthly income. Then they figure in your existing debts. For the most part, lenders want your combined mortgage payment and other debts to be under 36 percent. Lenders may let you exceed this guideline if you have an excellent credit history or can make a large down payment.

Following are some additional tips to check out before buying a home:

Look into government-sponsored lending programs (offering benefits to first-time homebuyers, lower-income purchasers, and military veterans) as well as private (conventional) mortgage programs.

Take time to learn how loan costs, insurance, and other fees will affect your repayment amount.

Important: Be prepared to negotiate with real estate agents, lenders, and sellers.