Despite inflated prices and high demand, owning a home is still a big part of the American Dream. And a major first step to reaching that dream? Securing financing.

Convincing a bank or credit union to fork over hundreds of thousands of dollars – on the expectation it will be paid back – is no small feat. If it sounds tricky, it can be.

Truth is, applying for a loan means you’re allowing a lender to dig into your background, history and finances to assess if you’re going to be a solid borrower, or if you have a high likelihood of defaulting.

Since lenders consider a range of factors before they approve a mortgage, it’s important to take stock of your entire financial picture. Here are three significant pieces that can make or break your chance at landing a home.

1. Your Score

When assessing risk, your credit score typically carries the most weight. 90 percent of “top lenders” use scores for key insights into a borrower’s payment history, credit history, debt amounts and more.

Your credit score will also play a role in the loan’s interest rate. The better your score, the lower your rate, which can save tens of thousands of dollars over the span of your mortgage. Ideally, your score should be 700 or above – or what’s considered “good” by most creditors. If you don’t have a great score, don’t fret. You can follow these four simple steps to increase it.

Bonus tip: You’re entitled to a free credit report from each of the three credit reporting agencies — Equifax, Experian and TransUnion – every year. Online resources like Credit Karma or Credit Sesame also provide free and real-time credit score updates from one or more reporting agencies, along with tips/tricks on how to improve it.

2. Debt-to-Income Ratio

Lenders also consider your debt-to-income ratio (DTI): the sum of all of your monthly debts divided by your gross monthly income (before taxes). Debts can include student loans, auto loans, and minimum credit card payments.

Typically, lenders prefer to see a debt-to-income ratio that’s no higher than 36 percent, meaning if you and your spouse bring in a gross income of $100,000 a year, you shouldn’t be spending more than $3,000 a month on total debt payments ($100K X .36)/12). Anything higher may hinder your chances of securing a mortgage, but even that isn’t a deal breaker. Depending on your lender, they may help identify ways to work around your DTI ratio.

3. Sources of Income and Down Payments

Regardless of how honest you are, lenders will always require you to provide lots of verifiable records, including bank statements, pay stubs and tax returns to confirm sources of income, and make sure you can pay them back. 

On the subject of where your money comes from, down payments are also meticulously scrutinized. If you’re gifted a down payment, there are rules you need to follow. For instance, a down payment gift can’t come from anybody — it must be an actual relative, or in some cases, a spouse or fiancé. Your lender will not only verify the relationship, but ensure the funds are a legitimate gift and not a loan.

Bonus tip: Not lucky enough to have a wealthy relative gift you a down payment, or are struggling to come up with the funds for one? Don’t stress. You have a lot of options, including Federal loan programs and down payment assistance. There’s also several saving/earning hacks and strategies you can tap to build up that nest egg.

Reducing Risk

Once you know the factors that contribute to your likelihood of being approved or denied, understand the steps you need to take for mortgage readiness. Do research; take a home buying or financial literacy class. Potential buyers in California, Colorado and Arizona can visit the Housing and Urban Development Agency’s website for complete lists of home-ownership education classes and resources available.