Mortgage Requirements to Buy a Home

Raise Your Credit Score

• Lenders put great emphasis on credit scores and credit history, and issues with your credit such as late payments and collection accounts can stop a mortgage approval. Get your credit report and score from AnnualCreditReport.com and MyFICO.com, respectively. Make improvements to raise your credit score to 720 or higher. This includes timely payments to creditors and reducing your outstanding debts.

Plan for a Down Payment

• Mortgage lenders seldom approve home loans to borrowers without down payments. A 20 percent down payment builds equity quicker, but understandably, not every borrower has this type of cash. Typical down payments are within the 10 percent range; but if applying for an FHA mortgage loan, you can buy a home with much less down.

Monthly Payment

• Mortgage lenders will not approve you for a mortgage that you can't afford. With that said, plan to spend no more than 28 percent of your gross monthly income on the home loan payment. This provides a cushion wherein you can meet other monthly expenses such as utilities, transportation, food and other debts. For example purposes, 28 percent of $5,000 a month is $1,400.

Income Statements

• Statements to verify your monthly or annual gross income are required when applying for a mortgage loan. These statements are crucial to the lending process because mortgage lenders use them to determine how much you can afford to spend on a mortgage. They generally ask for two years' worth of tax statements or paycheck stubs. Consecutive employment and income for two years shows stability.

Closing Costs

• Anticipate closing costs or mortgage fees when applying for a home loan. Closing costs are about 3 to 5 percent of the loan balance, and lenders expect payment of closing fees on the day of closing. Sellers may help pay for closing costs, and some lenders offer provisions to reduce or alleviate any out-of-pocket expense. This includes rolling the costs into the mortgage, or waiving closing fees and charging a higher mortgage rate.