• Lenders consider credit, income and cash reserves for mortgage approvalpiggy bank image by saied shahinkiya from Fotolia.com
  
  In order to obtain mortgage loan approval, you must be prepared to meet lenders' underwriting guidelines as they relate to credit history, income and assets requirements. These factors determine your attitude toward debt, your spending habits and ultimately, your ability and willingness to repay a mortgage in the future. In general, lenders give those with the best qualifications the best interest rates. You may also get a broader range of loan options as lenders compete for your business.
  
  

Credit History

• Your credit score, as determined by the Fair Isaac Corporation (FICO), is one of the most important factors in obtaining loan approval with a competitive interest rate. According to MSN Money, a 720 FICO (the national median) is considered excellent, but when money is tight, lenders are more likely to scrutinize your credit and demand at least a 740 for the best rates. To get to this level, you must have the money to pay your bills on time, plus pay down your debts. You must also continuously (and responsibly) use credit. Credit card activity, including the balances you maintain, the length of time you've had credit and the on-time payments you remit, generates your score. Working your credit is different from simply carrying balances. It's best to pay-off debt in full, within 30 days of charging it, to avoid expensive interest payments. MSN Money recommends acquiring at least one of the major credit cards such as a Visa, MasterCard, Discover or American Express, to bring your score above 700. It may take 30 days to several years for your score to change, as collectors report your recent payments to the credit bureaus and negative reports, such as 30-day-late payments, bankruptcies or foreclosures, drop off of the report.
  
  

Income

• Fannie Mae, a private mortgage corporation sponsored by the U.S. government which purchase mortgages from lenders, sets underwriting guidelines for much of the mortgage industry. To obtain the best mortgage approval, applicants must demonstrate continuous (at leas two years) and verifiable employment for the income they will use to qualify for the loan. According to the Fannie Mae Selling Guide, a borrower's total monthly debts (including new mortgage) should not exceed 36 percent of their stable monthly income. Owing less than this amount reduces the lender's risk, and thereby allows them to offer you better terms.
  
  

Assets and Reserves

• Borrowers who can demonstrate that they have sufficient liquid assets or reserves to cover their monthly obligations in the event of job loss or other financial hardship, for at least a few months, will get the best loan. Fannie Mae defines "liquid financial reserves" as those assets available to the borrower as cash or easily converted to cash. Investors must generally demonstrate at least 6 months worth of mortgage payments, while principal residence borrowers can show 2 months.