When deciding whether or not to grant a loan, lenders look at three key factors: income, savings and credit history.

• YOUR INCOME gives you the ability to make your monthly mortgage payments. Generally, lenders require applicants to have a two-year stable employment history. Applicants who have been at their job for a shorter period of time should have been in the same field previously. In case of self-employed borrowers, lenders have the same conditions but also require thorough income documentaion.

• YOUR SAVINGS enable you to pay for the upfront costs associated with purchasing a home. These include the downpayment, closing costs and cash reserves. The downpayment is a percentage of the home's purchase price and is usually the largest part of the upfront costs. Next, funds are needed to cover closing costs. Closing costs include all fees required to execute the sales transaction. These include, but are not limited to attorney fees, title insurance, appraisals, points and tax escrows. While these charges vary considerably from state to state, most homebuyers need between $3,000 to $5,000 for closing costs. Finally, homebuyers need to have enough savings to cover unexpected expenses after paying the downpayment and closing costs. Typically, lenders prefer borrowers have reserves equivalent to three months of mortgage payments.

• YOUR CREDIT HISTORY reveals your management of other credit such as car loans, and credit card balances and is a crucial factor in determining your credit-worthiness. One way to assess your management of credit is to look at the ratio of your debt payments to your income (debt ratio). Debt payments consist of car payments, student loans, alimony, required payments on installment loans and required payments on credit cards. They do not include rent, utility bills, mortgage payments, or payments on credit card balances that you pay off in full at the end of the month. Add up all your debt payments and divide them by your monthly income. If your monthly payments are more than 10 percent of your income, your debt ratio may be problematic. If, along with a high debt ratio, you also have a history of missing payments, then qualifying for the best mortgage rates may be difficult. Even if your payment history is clean, you might benefit by paying down some of your debts before you take on the additional burden of a mortgage.