Loan Qualification Basics

Whether you're buying a home or refinancing an existing home loan, you'll soon find out that lenders today are a picky and demanding bunch when it comes to loan approvals. Even well-qualified borrowers are expected to jump through some pretty high hoops to qualify for financing.

The four C's

The answer may be summed up with a mnemonic called "The four C's," according to Greg Gwizdz, national sales manager for Wells Fargo Home Mortgage in Des Moines, Iowa.

• Capacity, which refers to the adequacy of the borrower's income to cover the interest and principal due on the loan, plus property taxes and homeowners insurance.

• Character, which refers to the borrower's track record of paying debts, as evidenced by his or her credit history and credit score.

• Capital, which refers to the borrower's down payment (or equity) as a percentage of the current value of the home.

• Collateral, which refers to the safety and soundness of the home and the value of the home as determined by an appraisal relative to the agreed-upon purchase price.

Neither a high income nor an exemplary credit report alone is enough to make your loan application stand out. What lenders like to see is strength and stability in all four areas.

No big changes after you apply

Well-qualified borrowers can still knock themselves out of the loan process if they violate certain rules, the most important of which is: Don't make any substantive changes to your financial position after your loan application is submitted. Here are some more precautions:

Don't increase your debt burden. Don't open new credit accounts, even just to transfer a credit card balance, Don't change your employment, Don't delay payment of your bills or rent.

information taken from an article on MSNMoney.com. For the complete article click on the link below.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/HowToWowYourMortgageLender.aspx