Basically, they are willing to loan you an amount that's 2-1/2 times your annual gross income. Additionally, your long-term debt (any debt that will t take over 10 months to pay off) like mortgages, car loans, student loans, alimony, child support, and credit cards shouldn't exceed 36% of your monthly gross income. However, lenders can be somewhat flexible. Before a final decision is made regarding your loan worthiness they will review your previous mortgage/rent payment history, credit card use, installment debt payment history, proof of cash necessary for down payment and closing costs, and your fiscal character - do you take responsibility for your debts. And, the final hurdle is the proposed house itself. Is it worth at least as much as the loan amount? Inspections that bear the proof will be necessary.

Ante Up
How much cash are you going to need to finalize this purchase? Usually, the more cash you put down the lower your interest rate. A little short? You can get a loan with as little as 0% down, but the interest rate will be higher. One loan with less than 20% down will require Private Mortgage Insurance (PMI). That premium can run anywhere from .00625 to .009 of the loan amount per year depending on the down payment. However the PMI premium can be avoided by obtaining an 80% first and a 20% second mortgage. The rates for the second mortgage will be higher than the first, but interest is deductible on your tax return, PMI premiums are not. It's always best to calculate each scenario to see which best fits. Your loan consultant is the best one for that job. He knows all of the current rates, and how to best package your loan.

Don't forget the rest of the closing costs like points, hazard insurance, inspections and title fees. These costs can be 3% to 6% of the loan amount. Also, the lender can ask you to have two months mortgage payments in your savings account.

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