Debt-to-Income Ratio

• Before taking out a mortgage loan, you need to be certain that you can afford to pay it each month. If you take out a loan that is too expensive for you, you run the risk of missing payments. That can lead to foreclosure and a 100-point-or-greater dip in your credit score. To determine how much loan you can afford, take a look at your debt-to-income ratio. Mortgage lenders recommend that your monthly debt obligations -- including the estimated cost of your new mortgage payments -- total less than 36 percent of your gross monthly income.
  
  

Your Credit Score

• Before applying for a mortgage loan, take a look at your three-digit credit score. This score, which ranges from the high-300s to the mid-800s on the popular FICO credit-scoring system, tells you how well you've handled money in the past. If you've had a long history of paying your bills late, your credit score will be low. If you've paid your bills on time and haven't run up huge amounts of credit card debt, your credit score will be high. If your score is 740 or higher on the FICO scale, you'll qualify for the lowest mortgage interest rates. This will leave you with the lowest monthly payments, too, something that makes your mortgage loan a safer financial bet. You can get your credit score -- though you'll have to pay about $15 for it -- from the online homes of the three national credit bureaus, Experian, Equifax and TransUnion.
  
  

Your Employment

• If you don't have a steady and secure job, you'll be taking on a significant risk by taking out a mortgage loan. Lenders prefer that you have worked with the same company for at least three years. This is a good benchmark to use on your own when you're considering the wisdom of taking out a mortgage loan. If you lose your job, you'll undoubtedly struggle to make your mortgage payments on time. There are, of course, no guarantees with any job. But if you've worked at the same company for three years or more, your employment status is usually more secure than if you've worked there only a month.
  
  

Be Conservative

• Mortgage lenders might approve you for a larger mortgage loan -- and the bigger monthly payments that come with it -- than with which you are comfortable. Just because you can take out a larger loan, though, doesn't mean that you should. Only take out a mortgage that will leave you with a monthly payment that won't become a financial burden. If this means buying a smaller, less expensive house, that is the prudent decision.