Become a Stellar Mortgage Applicant

You have an edge in getting that loan approval when you know what lenders are looking for in your loan application.

Miss America hopefuls don't show up in Las Vegas wondering what they're supposed to do next. These young women train rigorously for the five judged competitions of the pageant: private interview, talent, swimsuit, eveningwear, and onstage question. Why not approach the home mortgage approval process in a similar manner?

Getting your loan approved isn't a beauty pageant, but you can certainly treat it like one. When you submit a loan application, lenders are looking for certain things. Knowing what these are, and how they should be presented, helps you position yourself to win that loan approval.

Talent competition: Credit management

Lenders look to your credit score as a major indicator of your creditworthiness. If you think your credit background might be a problem, pull your free annual credit report before you submit your loan application. Review the report for errors and blemishes. If there are mistakes, have them corrected. Visit MyFico.com to buy your credit score. A number above 750 shouldn't cause you trouble, but obtaining a loan will be challenging if your score is in the 600s. If your score is below 600, you may have to postpone your home purchase for a year or two.

Private interview: Income and spending

You'll need to document your income and list your debts and expenses. Be prepared to provide tax returns and W-2s to support the figure you provided on your application. Lenders will look carefully at your income relative to what you spend in debt payments. This is called the debt-to-income ratio, and the calculation will include the mortgage payments for which you're applying, plus credit card debts, auto loan payments, and other regular obligations. Your debt-to-income ratio should be below 36 percent.

Onstage question: Property value and loan amount

A little thing called the loan-to-value ratio, or LTV, can sometimes get in the way of your loan approval. LTV is the appraised value of the property divided by the loan amount. Lenders like to keep this percentage at or below 80 percent. This can be a problem if the home you want to buy is worth $200,000 and you only have $20,000 (or 10 percent) available for a down payment. If you're worried about having enough cash, get a free appraisal online at Yahoo! Real Estate before you submit your loan application. Then you can decide how to proceed. There are federal loan programs that allow for low down payments; you might consider discussing these with your lender.

When you receive your loan approval, it will come without a crown, rose bouquet, or college scholarship. But it will come with a new home-and you won't have to wear a bikini to get it.