It's Getting Easier to Qualify for a Mortgage -- but Take These 3 Steps to Seal the Deal
KEY POINTS
- Mortgage credit availability improved in December.
- Getting a mortgage isn't a given, and it's important to know what steps to take to secure one.
While lenders are getting less strict with borrowers, it still pays to set yourself up for success.
When the COVID-19 pandemic first exploded and unemployment was rampant, mortgage lenders had to be careful when loaning out large sums of money, and understandably so. But thankfully for prospective borrowers, lenders have since relaxed a bit.
In December, mortgage credit availability increased, as per the Mortgage Bankers Association. Not only that, but it reached its highest level since May 2021. And while mortgage credit still isn't as available as it was before the pandemic, we're getting closer to that point.
If you're hoping to get a mortgage in the near term, it's good to know you may have an easier time thanks to loosened requirements. But still, it's important to present yourself as a strong borrower. Here's how in three important steps:
1. Boost your credit score
The minimum credit score needed to qualify for a conventional mortgage is 620. But that doesn't mean a score of 620 guarantees you a home loan.
First of all, some lenders have higher standards than others, so while one might approve your application with a 620 credit score, another might reject it. Furthermore, the higher your credit score, the lower the interest rate you'll snag on your home loan. And seeing as how you may be borrowing several hundred thousand dollars, that's an important thing.
There are different steps you can take to boost your credit score. One thing worth focusing on is your payment history. Submitting all of your bills on time is a great way to bring your score up.
It also pays to check your credit report for errors. Correcting damaging mistakes (like delinquent debts you never incurred in the first place) could result in a quick rise in your credit score.
2. Pay off some debt
If you owe money on your credit cards, paying some or all of your balance off could help in two regards. First, the less credit card debt you have outstanding, the higher your credit score might climb.
Furthermore, mortgage lenders look closely at your debt-to-income ratio when determining if you're a strong borrower or not. That ratio measures how much of your income is monopolized by outstanding debt payments.
As you might imagine, if that ratio is high, it sends a message to lenders that you're already borrowing quite a lot, and perhaps shouldn't add a mortgage into the mix. But if you pay down some credit card debt, you can lower that ratio and give lenders more confidence in the fact that you're not overextended.
3. Increase your earnings
The amount of money you need to qualify for a mortgage will hinge on the loan amount you need. As you might suspect, it takes a higher income to qualify for a $500,000 mortgage than a $250,000 mortgage. But either way, boosting your earnings is a good thing to do if you're planning to submit an application.
You can grow your earnings by researching salary data for your job and making sure you're being paid a fair wage. Or, you can get a side hustle and raise your income that way.
While mortgage credit availability may be opening up, that doesn't automatically mean you'll get approved for a home loan when you want one. If you want to improve your chances of having a lender say yes, make sure to come in with a high credit score, minimal amount of debt, and strong income.
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