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Mortgage approval made easy

Whether you're buying a home or refinancing an existing home loan, you'll soon find out that lenders today are a picky and demanding bunch when it comes to loan approvals. Even well-qualified borrowers are expected to jump through some pretty high hoops to qualify for financing.

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But fear not: These tips and suggestions can help you make the best possible impression on the lender of your choice.

Just as job-hunters may wonder what top employers want to see on a resume, prospective borrowers may be curious about what lenders look for on a loan application.

The answer may be summed up with a mnemonic called "The four Cs," according to Greg Gwizdz, national sales manager for Wells Fargo Home Mortgage in Des Moines, Iowa.

The four C's
Capacity, which refers to the adequacy of the borrower's income to pay the interest and principal due on the loan, plus property taxes and homeowners insurance.(Use the mortgage calculator to see how much your payment will be.)

Character, which refers to the borrower's track record of paying debts as evidenced by his or her credit history and credit score.

Capital, which refers to the borrower's down payment (or equity) as a percentage of the current value of the home.

Collateral, which refers to the safety and soundness of the home and the value of the home as determined by an appraisal relative to the agreed-upon purchase price.

Mike Mueller, a mortgage broker with Patagonia Finance in San Francisco, uses a quadrant with "income," "credit," "assets" and "property" in the four corners, but his point is the same as the four C's: Neither a high income nor an exemplary credit report alone is enough to make your loan application stand out. What lenders like to see is strength and stability in all of the four corners.

"If you're strong in all four corners, you're on a chair," Mueller says. "That's pretty stable. In theory, I can take away one of the corners -- maybe your credit score has some dings or you need a stated-income loan -- but the other corners are still pretty solid, so you have a tripod. That's not as stable as a chair, but it will still stand up. If you take away another corner, you have a ladder. Ladders don't work anymore."

Borrowers who are qualified, but whose down payment will be less than 20 percent of the purchase price of the home must withstand a second level of scrutiny. That's because mortgage insurers also have to approve such loans, and they have "completely different qualification ratios," Mueller says. Borrowers in this situation should discuss their options with a loan officer who is familiar with lenders' and insurers' guidelines.

A pile of paperwork
Lenders rely not on the borrower's say-so, but on a pile of paperwork to verify and document the borrower's financial position. At a minimum, most borrowers are required to submit the following.

Paperwork needed for a mortgage application
Minimum required paperwork:
One month of paycheck stubs.
Two years of W-2 forms.
Three months of bank account statements.
Additional paperwork that may be required:
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