When you apply for a mortgage, a lender is really answering one question: how likely is it that this loan gets repaid? To answer it, underwriters look at a handful of things in a fairly predictable way. Knowing what they are, and what they're looking for, lets you fix problems months ahead instead of in the middle of escrow.

Here are the factors that matter most, how lenders read them and how to prepare, whether this is your first home or your next one.

1. Credit

Your credit report shows how you've handled debt over time, and your scores condense that history into numbers lenders use for both approval and pricing. Higher scores generally mean better terms and lower mortgage insurance costs. Lenders also read the details behind the score: recent late payments, collections, how much of your available credit you're using and how long your accounts have been open.

How to prepare:

• Pull your reports from all three bureaus several months before you apply.

• Dispute errors early. Corrections can take a month or more to show up.

• Pay every account on time and keep card balances low compared with your limits.

• Hold off on new accounts and loans until after you close.

The score in your banking app often isn't the version a mortgage lender uses, so ask a lender to review your actual mortgage credit before you start shopping. More on the credit mistakes that hurt most and what helps.

2. Employment and income

Lenders need to see income that's stable and likely to continue. The old rule that you need years at the same company is mostly outdated. Underwriters look for continuity of income, not loyalty to one employer.

How different kinds of income are usually treated:

• Salary: the simplest. Recent pay stubs and W-2s, plus a verification of employment.

• Hourly, overtime and bonus: usually averaged over time, often two years, so one great stretch doesn't count the way you'd hope.

• Commission: generally needs a track record, typically up to two years.

• Self-employed: qualified on taxable income from your returns, usually two years. The write-offs that lower your tax bill also lower what you can borrow.

How to prepare:

• Gather two years of W-2s or tax returns and your most recent pay stubs.

• If you're self-employed, talk with your lender and tax preparer together before you file.

• Have a short written explanation ready for any gaps in employment.

Changing jobs before you buy isn't automatically a problem. Salary to salary in the same line of work, especially with a raise, is usually fine. Moving from salary to commission or self-employment is where it gets complicated, because the new income needs a history. The move to avoid is changing jobs mid-process without telling your lender. Employment is verified again shortly before closing. See what not to do while you're in escrow.

3. Down payment and cash reserves

Lenders verify that you have the money for your down payment and closing costs, and that it came from an acceptable source. Many loan programs also look at reserves, meaning money left over after closing. Reserves show you can handle a surprise, and they can strengthen an approval that's otherwise borderline.

How to prepare:

• Keep the funds you'll use in accounts with clear statements. Lenders typically ask for the most recent two months.

• Avoid large cash deposits. Any deposit that isn't from payroll may need a paper trail.

• If family is helping, plan for a signed gift letter and a record of the transfer.

• Leave a cushion. Don't empty every account to close.

More on where to keep your down payment savings and how down payment gifts work.

4. Debt-to-income ratio

Your debt-to-income ratio compares your monthly debt payments, including the new housing payment, with your gross monthly income. It's often the factor that sets how much you can borrow. Car payments, student loans (even deferred ones), minimum card payments, child support and loans you've co-signed all count. Paying off a small balance can sometimes do more for your approval than saving the same amount.

5. The property itself

The home has to qualify too. The appraisal has to support the price, a condo project may need to meet the lender's requirements, and you'll need homeowners insurance in place before closing. In parts of the East Bay, getting an insurance quote early is no longer optional.

If you're selling to buy

Your current mortgage payment counts in your debt-to-income ratio unless your home is sold, under contract or documented as a rental. Work out with a lender how that affects your approval before you list. Here's more on buying before you sell.

What to do next

Get a fully reviewed pre-approval early, while there's time to fix anything it turns up. Then search homes across the East Bay with a budget you can trust.

Want a lender's read on where your application stands? Call or text 925-876-0876, or reach us here.

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