3 Steps to Qualify for a Mortgage by the End of the Year

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Want to buy a home in early 2022? Here's how to set yourself up to qualify for a loan.

Key points

  • If you're aiming to buy a home in the new year, you'll probably need a mortgage to finance it.
  • By boosting your credit score, paying off debt, and raising your income, you can improve your chances of getting approved for a home loan.

Will 2022 be a good time to buy a home? It's too soon to know. This year, buyers have grappled with inflated home prices and limited real estate inventory, and things may not improve once the new year arrives.

But if you're aiming to buy a home early next year, you'll need to set yourself up to qualify for a mortgage. Here are a few steps you can take to increase your chances of getting approved before 2021 comes to an end.

1. Boost your credit score

Your credit score speaks to how responsible you are as a borrower, and so it makes sense mortgage lenders would take that number into account when deciding if you qualify for a home loan. You need a minimum credit score of 620 to get a conventional mortgage, but for a competitive interest rate on a home loan, you'll want a score that's much higher (ideally, one that's at least in the mid-700s).

To raise your credit score quickly, try paying off some credit card debt, which will bring down your utilization ratio. That ratio measures the amount of credit you're using at once, and the lower it is, the more it'll help your score.

At the same time, be sure to check your credit report for errors. Mistakes are pretty common, and if there's one on your credit report that reflects poorly on you (like a delinquent account that's not actually yours), correcting it could raise your score substantially.

2. Pay off some debt

Paying off credit card debt won't just help your credit score. It could also shrink your debt-to-income ratio. That ratio measures the amount of debt payments you have relative to your income.

Too high a ratio suggests that you're already spending a lot of your income on ongoing obligations, and it could serve as a red flag when you try to get a mortgage. Paying off some debt could help that ratio improve.

But it's not just credit card debt worth tackling. If you have a high personal loan balance, paying it off could also help bring that ratio into more favorable territory.

3. Boost your income

Because home prices are up, you may have to take out a higher mortgage than you normally would to purchase a place of your own. But is your income high enough to support a larger loan amount? If you're not sure, you'll increase your chances of getting approved for the mortgage you need by getting a second job. That way, your additional earnings will get counted toward your total income for qualification purposes.

There are a lot of different side hustles you can pick up. If you need something that gives you flexibility in your schedule, try seeing if there's a job available you can do from home at your computer, like data entry. Or, you can start driving for a ride-hailing service and shuttle passengers around at your convenience.

A few smart moves on your part could set the stage for mortgage approval by the end of the year. And that means you could end up in a much stronger position to buy a home once 2022 kicks off.

Our Research Expert