It's a really nice SUV. You really want it. The features are great -- multiple dvd players, high-tech MP3 compatible stereo system, GPS -- and its fairly affordable. After the down payment, the monthly cost will only be $350.

The salesman says if you buy the car today, he will include wood grain interior and rubberized side moldings.

Don't jump to yes yet. Think about how your decision will change your credit picture. You will be increasing your debt and monthly payments, making mortgage lenders wary. If you are looking to buy a home in the next year, you need to be careful about your financial choices.

We're not really talking about cars here. If you need a car for safe travel, then you must have a car. But if you are just looking for a new car, or a music system, an antique living room set, a trip to France or anything else that increases your monthly costs and isn't absolutely necessary, then you need to look at your financial picture. Specifically your mortgage capability, debt and ratios.

Lenders hate one thing -- risk. They are cautious people, usually taking the pessimistic side. If you look like a duck, have the credit of a duck and sound like a duck -- you better get used to living outside like a duck. You have to be well-qualified to get a great mortgage today.

The expression "well qualified" just means that you have more to offer than a good income. Yes, you have to have steady income, but lenders are looking for more. They are looking for a sense that you aren't burdened with too many bills. To lenders, this means limiting debt and monthly costs.

Lenders are looking at two ratios when judging how much debt you can handle: front ratios and back ratios.

The front ratio is the percentage of your gross monthly income used for mortgage principal, mortgage interest, property taxes and property insurance. Depending on the lender and your situation, most lenders will allow anywhere from 28% to 41% to your front ratio, also called the PITI.

The back ratio is your PITI plus all other monthly payments, including car payments, credit card payments, student loan payments and all other debt. Back ratios should be in the 36% to 41% range for most individuals.

For example, you are looking to borrow $150,000 for 30 years at a 7% interest rate. The monthly cost for your principal and interest will be $997.95. Add in the monthly cost for taxes and insurance, around $250. The total PITI for the home is $1,247.95. If the lender only allows 28% of your income for PITI, you must earn at least $4,457 before taxes each month.

If the lender allows 36% of your income for the back ratio, you will have only $1,605 for your PITI and other monthly debt. With $1,247 already committed to the front end, you have $358 left over for installment loans, credit card debt and auto payments.

Wow, it's not very much. That nice, shiny loaded SUV will increase your monthly debt load to the point where you won't qualify for a $150,000 mortgage.

What can you do about your mortgage picture to help your mortgage?

Hold off on any major expenses until after you have closed on your home. Don't get approved for a mortgage and then charge up your credit cards before closing. Most lenders re-check your credit report the day before settlement. If they see anything new, your mortgage may still be declined. Think about taking out a smaller mortgage by purchasing a less expensive home or putting more money down up front. Pay down your consumer debt to reduce your monthly payments. Consolidate bills to obtain lower monthly costs. Switch from high cost credit cards to lower cost cards with less montly costs. Look for mortgage programs that are more liberal with qualification. If you have a strong credit picture, financing should be readily available. Ask if "compensating factors" could allow you to borrow more.

Copyright 2006 #1 Loans USA

About the author:

Martin Lukac, represents #1 Loans USA http://www.1loansusa.com a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. For mortgage rates please visit http://www.RateEmpire.com