You're ready to apply for a mortgage loan. But you're worried that your credit score might be too low to qualify.

If you're searching for a mortgage, you know just how important credit scores are. But a low score is far from the only reason lenders might reject your loan application. Maybe you should be more concerned that your debts are too high or your income is too low. And if you haven't held the same job for two years or more? That's another reason to worry about having your loan application denied.

Financial pros today say that five key factors could keep you from qualifying for a home loan. And a low credit score? That might not even be the most common.

"It's a different landscape today when it comes to qualifying for a mortgage loan," said Chris Copley, regional sales manager with the Mount Laurel, New Jersey, office of TD Bank. "The financial requirements have become tighter. All of the banks are playing by the same set of rules today."

According to the most recent data from the Home Mortgage Disclosure Act report, 14.5 percent of applications for purchase mortgages were denied in 2013, about the same as in 2012.

If you don't want to become part of this 14.5 percent, here are some red flags to look for with your finances.

Undocumented income

You might think that low credit scores are the top reason why loans are denied. But Copley says that lenders typically worry more about approving loans when borrowers can't prove their income.

When you apply for a mortgage loan, your lender will ask for copies of your most recent W-2 statements, tax returns, bank statements and paycheck stubs. The reason? They want to verify that your income is as high as you say it is. They also want to determine whether your income is consistent from one year to the next.

"If we look at your W-2 statements and see that you made $80,000 one year, $82,000 another year and $85,000 the next, that's an easy pattern to see. And it makes us confident that your income will stay steady," Copley said. "But if you can't provide us the documentation we need to prove your income over the years, then it becomes more difficult for us to approve your application. We don't know if your income will be consistent every year."

Too much debt

Lenders don't want your debts to consume too much of your monthly income. That's why you'll usually need a debt-to-income ratio of 43 percent if you want to qualify for a mortgage.

A 43 percent debt-to-income ratio means that your monthly debts - including your estimated monthly mortgage payment - must equal no more than 43 percent of your gross monthly income. If your debt-to-income ratio is higher than 43 percent, the odds are high that lenders will reject your loan application.

Bad credit

All this doesn't mean that credit scores still aren't important. Mortgage lenders look closely at credit scores, too, when deciding who qualifies for a mortgage loan. Lenders consider a FICO credit score of 740 or higher to be an excellent one. And though it is possible to qualify for a mortgage loan insured by the Federal Housing Administration - better known as an FHA loan - with a FICO credit score of as low as 500, that's unrealistic. If your score is below 620, expect most lenders to deny your loan application, no matter what type of loan you seek.

Credit remains a stumbling block for many applications, according to Andy Andrews, a real estate agent with Cross Street Realtors in Chestertown, Maryland.

"Many people have not monitored their credit and are marginal candidates for mortgages, especially with bank criteria becoming more stringent," Andrews said.

A shaky employment history

If you have struggled to hold onto one steady job during the two years before applying for a mortgage loan, don't be surprised if lenders reject your application. Copley says that one of the most common reasons today for a rejection is an inconsistent employment history.

Lenders don't want to loan money to borrowers who have a history of moving from job to job. They want to know that their borrowers will be making the same salary one year from now as they are on the day they filled out their loan applications.

"Stability is important today," Copley said. "What is the job security with this person? Did they make a similar amount of money as they did last year? Did it increase or decrease by 30 percent?"

A small down payment

Say your credit score is lower than ideal. Or maybe your debt-to-income ratio is too high. Maybe you were unemployed for six months last year. These are all signs of trouble for mortgage lenders.

But you might be able to overcome any one of them if you can come up with a large-enough down payment.

You can find lenders who require down payments as low as 5 percent of a home's purchase price. If you apply for an FHA loan, you can qualify with a down payment as low as 3.5 percent of your home's purchase price.

But if you have weak credit or a high debt-to-income ratio, providing a larger down payment -- more than 20 percent of your home's final purchase price -- can make a big difference. That's because lenders feel that you are less likely to stop making mortgage payments if you've already invested a significant amount of your own cash into your mortgage payment. By making a large down payment, you have more "skin in the game."

Published on September 16, 2008