Understanding and selecting a mortgage is not all that difficult to tackle after you cut through the jargon and know how to think about your overall financial situation and goals. Unfortunately, when you apply for a mortgage, obstacles may get in your way. Don't despair --

You may have to exhibit a bit more patience than usual, but with a little determination, you can overcome credit and other problems.

Common Problem No. 1 -- Insufficient Income. Your lender may reject your loan application if you appear to be stretching yourself too thin financially. The lender may be doing you a favor, though, by keeping you from buying a home that will prevent you from saving money and achieving other financial goals that may be important to you over time. If you KNOW you can afford the home, here are some keys to getting your loan approved:

1) Be patient. You may need to wait a year or two so that you can demonstrate a higher income (especially if you're self-employed and deduct everything but the kitchen sink in order to lower your taxes).

2) Put more money down. If you make a down payment of 25-30%, some lenders can approve you for their no-income-verification loan. Such mortgages often come with higher interest rates, so recognize that you'll pay a premium for this type of loan.

3) Get a cosigner. If your folks are in good financial shape, they may be able to cosign a loan to help you qualify. A financially solvent sibling, aunt, or wealthy pal can do the same.

Common Problem No. 2 -- Debt and Credit Problems. Lenders examine your credit history as well as your current debts and liabilities. This data can produce a number of red flags. If you have credit reporting mistakes:

1) Be proactive. Write a concise letter to the lender explaining why the flaws are there. Perhaps you lost your job unexpectedly and fell behind in payments until you located new employment.

2) Shop around for flexible lenders. Some lenders only work with "A" paper (representing the most perfectly credit-scored buyers), and some lenders work with "B" paper and subprime loans.

3) Look to the seller for a loan. Sellers who are interested in carrying a note and earning the interest are uncommon in this market, but they are out there. (Most sellers, of course, need to get all their equity in order to purchase their next home.)

4) Fight and correct errors. Creditors make mistakes. Start by identifying the erroneous information on your credit report. If it's a mistake, tell the credit bureau to examine the possibility that the derogatory information belongs on someone else's report. If the bad data IS for one of our accounts, but the creditor has made an error, you may have to harass the creditor until they instruct the credit bureau to fix the mistake. You must be willing to be persistent!

5) Get a cosigner.

6) Save more and build a better track record. Spend 2 years saving more money and keeping a clean credit record, and you'll be able to get a much lower interest rate. (Most lenders want to see a 2-year track record of clean credit.)

If you're having problems getting approved, sit down with your loan officer and make a list of the items you must rectify to get an approval. Instead of trying to guess what's wrong, you'll have a checklist of everything you need to correct.

Common Problem No. 3 -- Excess Debt. Should you have cash available to pay off some or all of the debt, do so. If you don't have the cash:

1) Set your sights more realistically. Buy a less expensive home for which you can qualify for a loan.

2) Go on a financial diet. Your best bet for getting rid of consumer debt is to take a hard look at your spending and identify where you can make cuts. Use your savings to pay down the debt. Also consider boosting your employment income.

3) Get family help. Perhaps a family member can either cosign, or give you money to pay down your high-interest debt.

Common Problem No. 4 -- Lack of a Down Payment. There are many zero-down loans out there, if your credit scores are good. In a Seller's Market, however, your offer may get passed over for someone else's offer with a 20% down payment. If you choose a zero-down loan, have your lender get you a preAPPROVAL. This makes your offer even stronger than the 20% down offer.

Common Problem No. 5 -- Appraisal Problems. The property you've fallen in love with isn't worth what you agreed to pay for it, at least according to the appraiser. Here's what can cause a low appraisal:

1) You've offered too much for the home. Be grateful that the appraiser has provided you with a big warning that you're about to throw away money. It's possible that the appraiser has determined you need a new roof, a new foundation, or other structural repairs that you didn't know about. Tip: You can use the appraisal to negotiate a lower selling price or get the seller to do necessary repairs.

2) The appraiser doesn't know the area. If you and your agent know local property values and have seen comparable homes that justify the price, it's possible that the appraiser simply doesn't know local property values. If this happens, express your concern to your lender (who ordered the appraisal). Also request a copy of the appraisal. Sometimes you can have a reappraisal at no additional charge, if you can show that the appraiser didn't know the area.

3) The appraiser/lender is sandbagging you. The lender may want to get out of doing the loan with you if he or she feels the loan is undesirable. Lenders who use in-house appraisers are best able to torpedo loans they don't want to make. Why? The loan officer works on commission (and is not the person who makes approval decisions at the lending company). If this happens, request a copy of your appraisal (you've paid for it, it's yours). Confront your lender if you get the runaround. Go to the supervisor. If you get no satisfaction, ask for a full refund of your application and appraisal fees and take your business to another lender.

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