Now, lending standards are back in vogue, which is one very good reason it is tougher to qualify for a home loan than it was just a few years ago. Lenders still rely on credit scores to help determine whether someone is a good risk, and automation continues to speed the process. But the human equation has been put back into underwriting.

A decision yea or nay no longer hinges on what the computer says, at least not totally. Rather, it rests on a multitude of interrelated elements, all of which must be weighed to determine the probability that the loan will be paid back in a timely fashion; and if it's not paid back, whether the property is of sufficient value to recover the lender's investment.

Generally, underwriting parameters can be sorted into what's known in the trade as the Five Cs: capacity, character, capital, collateral and compliance. Would-be borrowers would be wise to understand these categories and how they might affect an application for a mortgage.

* Capacity is defined as the ability to make monthly payments. But it's more than just how much money the potential borrower earns every month. It's also his occupation, employment history, opportunities for the future, age, education and training for the position he currently holds.

A key factor here is stability and durability. In other words, it's best not only to demonstrate consistency but also to be in a field in which workers are in high demand and advancement is possible, if not probable.

Job changes are seen as normal, and frequent movement up the ladder is looked upon favorably. But numerous changes without advancement or from one line of work to another may be evidence of instability. Still, job-hopping is not necessarily frowned upon if earnings remain stable.

If you're self-employed, the stability of your business must be established with profit-and-loss statements, balance sheets, income statements and tax returns for the two most recent fiscal years. If the business is less than 2 years old, a more subjective review will consider your training and experience in the field, your working capital and other pertinent factors.

Secondary income such as bonuses, commissions, overtime or part-time work is considered steady income if it is typical for your job, can be substantiated and will continue. Alimony and child support are stable income to the extent they are likely to continue.

* Character is your willingness to make the monthly payments. Here you have to demonstrate your ability to handle debt. In going over your credit history, underwriters won't be looking for isolated problems as much as a pattern of timely payments according to the agreed-upon terms.

If your record shows you're always on time, you'll get favorable consideration. But if it shows that you've encountered difficulties meeting your obligations, the lender may want to know why. And if a review indicates a pattern of slow payment or reveals suits and judgments for nonpayment, you'll have to provide detailed explanations.

Would-be borrowers who continually increase their liabilities over time and then bail out by refinancing or consolidating their debts are seen as marginal. If the applicant has been subject to bankruptcy proceedings, liens or judgments or has voluntarily given up a house to a former lender, any subsequent lender will want to be sure the borrower has recovered by demonstrating over a period of time that he is capable of managing his finances. * Capital is your liquid assets. This isn't only the cash you have on hand to make the down payment and pay the required closing costs. That's a big part of it, but it's also the reserves you have to make the initial payments or later payments if your income is interrupted.

If you have a big wad of money for a down payment -- say, 25% or 30% of the purchase price -- most lenders will throw caution to the wind and approve a loan without too much checking. And the more money you have in the deal, the better.

In other words, equity motivates. In fact, there is no stronger motivator for a borrower to make his house payments than the amount of money he has invested in the property.

But it's not just the amount that's important, it's the origin of the funds. If you borrow the down payment, your equity is zero. And it's easier to walk away when something goes wrong if you have little or nothing invested in the property.

Lenders also like to see a regular pattern of savings. But if you don't have enough cash, they will accept gifts of cash or grants that you don't have to pay back. Borrowing the down payment is frowned upon, though, so if the underwriter finds a recent, large deposit in your account, or if the average balance has been less in the last few months than when you apply, he's going to be concerned.

* Collateral is the value of the property you want to buy. You'll pay for an appraiser of the lender's choice to evaluate the house to be sure that it can be sold for the amount you are borrowing in case you fail to make your payments.

* Compliance is the final step. Here, the underwriter will make sure the loan meets the lender's eligibility standards.

For example, the property might have to be an owner-occupied, single-family dwelling. More stringent rules might apply to an investment property.

Even if the loan falls outside one lender's standards, it may meet another's. Also, for a higher rate or different terms, the lender might make the loan anyway.

Few loan applications are cut and dried, or as lenders call them, "pretty" or "slam dunks." In fact, most don't fall within all the parameters defined in a lender's guidelines. When they don't, underwriters are instructed to look for "compensating factors" that offset a borrower's shortcomings.

Above all else, the underwriter's job isn't to eliminate risk. It's to evaluate the risk to see whether it's acceptable and then price it accordingly.

lsichelman@aol.com

Distributed by United Feature Syndicate Inc.