The guidelines most lenders use to approve your mortgage are quite straightforward.

Can you get a mortgage? The answer is Yes if:

your credit rating is good (it doesn't have to be perfect)
you have permanent employment
you have a minimum of 5% down

How large a mortgage do you qualify for?

Lenders base this on the monthly payment you can afford. Up to 32% of your (and your spouses) gross income (before payroll deductions) can go towards your mortgage payment and property taxes. If you earn $3,000/month you may qualify for a payment up to $960/month.

Lenders also consider your other payment obligations. All of your payments combined (including your mortgage) cannot exceed 40% of your gross income.

The monthly payment you qualify for will translate to a mortgage amount, which will vary as interest rates change.

For example, the monthly payment for a $150,000 mortgage is $960 (6% interest, 25 year amortization). If annual taxes are $2,000, your monthly payment including taxes would be $1,127. To qualify for that amount, you would need to earn $3,520/month, provided that the total of your other monthly payments doesn't exceed $280.

Why should you pre-qualify?

Pre-qualifying for a mortgage gives you the security of knowing how much you can spend, and it also may give you a slight advantage when negotiating with a seller.

Equally important, once you pre-qualify the lender will guarantee you the lowest rate possible. The lender will guarantee the rate at the time you qualify. If the rates are lowered before your time of purchase, you will be given the lower rate.