Why do you need good credit when qualifying for a home mortgage?

Home Buyers must demonstrate creditworthiness before a lender will approve their application for a home mortgage. The process isn't easy, but borrowers can increase their chances of success by being familiar with the requirements. Here's what most borrowers need to know:

Credit Score The borrower's credit score shows the lender whether the borrower has been responsible about paying debts, such as a current or prior home mortgage, auto loans or credit card. Borrowers with higher credit scores may be offered more attractive home loans at a better mortgage rates. On the other hand, borrowers with lower scores may have greater difficulty qualifying for a home mortgage.

Down payment. Most home mortgages require a down payment -- a percentage of the purchase price the borrower pays upfront in cash. The down payment shows the lender the borrower is committed to the home and has a personal stake in its ownership. The smallest down payment is typically on an FHA insured by the federal government through the Federal Housing Administration.
Debt-to-income. ratio. A high income doesn't necessarily mean a borrower is well-qualified to get a home mortgage. Lenders actually are more interested in the ratio between the borrower's income and his or her debts. Like the credit score, the debt-to-income helps lenders figure out whether borrowers have been responsible by avoiding accumulating more debt than they have the ability to repay.
Documentation. Lenders usually want to see evidence of the borrower's financial situation. This evidence, called "documentation," typically consists of copies of the borrower's paycheck stubs, bank account statements and tax retuns, among other documents. Self-employed borrowers may be required to provide a profit-and-loss statement as well.