5 Tips for Getting a Mortgage in 2022
Want to buy a home in the new year? Here's how to increase your chances of success on the mortgage front.
- It helps to know what it takes to qualify for a mortgage.
- If your goal is to buy a home in the new year, you may want to assess your credit, pay off some debt, boost your earnings, and do plenty of research.
Will 2022 be a better time to buy a home than 2021? It's hard to say. This year, housing inventory has been extremely limited and home prices have been high. Those trends could persist into the new year, making it another tough period for buyers.
But if you're up for the challenge of buying a home, then it'll help to put yourself in the strongest position to qualify for a mortgage. Here are five tips you need to know.
1. Check your credit report
Your credit report is a summary of your borrowing history and habits. It's something mortgage lenders will take into account when deciding if you're a viable borrowing candidate or not. Review that report thoroughly and make sure there are no red flags, like delinquent debts in your name. If there are, it pays to work on resolving those matters before moving forward with a mortgage application.
Similarly, you'll want to make sure your credit report doesn't contain errors (like delinquent debts you've since settled up) that could work against you. If you find them, you'll want to correct them before applying for a home loan.
2. Find out your actual credit score
Many consumers are surprised to learn that their credit reports don't list their actual credit score. To get that number, you may need to log onto your bank or credit card account. Or, you may need to pay for it.
Either way, it's important to know what your credit score looks like and make sure you're happy with that number. The higher it is, the more likely you are to not only get approved for a mortgage, but lock in a competitive mortgage rate on that loan. In fact, if you're able to get your credit score into the mid to upper 700s (or higher, of course), you'll probably snag the best rate any given lender is offering.
3. Lower your debt load
The more debt you have, the more a lender might hesitate to give you a mortgage -- especially if that debt eats up a lot of your income. You may want to consider paying off some debt before submitting a mortgage application. And if you're going to do so, focus on credit card debt first. Lowering your credit card debt could not only help your debt-to-income ratio improve, but it could also raise your credit score.
4. Boost your income with a side hustle
Your income is a factor lenders will use to see if you qualify to borrow for a home. Since home prices are up, you may need a larger mortgage than usual to purchase a home in 2022. That's why it could pay to boost your earnings with a side hustle, whether it's working shifts at a local store on weekends or driving for a ride-hailing company a few evenings a week.
5. Shop around
When it comes to giving out mortgages, each lender sets its own rates and closing costs, which are the fees you'll pay to finalize a home loan. It pays to gather offers from a number of different lenders, as doing so might help you snag a better deal.
That said, you'll want to do your rate shopping quickly -- ideally, within 14 days. Each time a lender pulls your credit report to see if you're a qualified borrowing candidate, it counts as a hard inquiry. Too many hard inquiries can drag down your credit score, making it harder to borrow. But if you have hard inquiries from multiple lenders over the same short time frame for the same purpose (getting a mortgage), then all of those inquiries will be counted as one, minimizing the hit to your credit.
It's too soon to tell what the 2022 housing market has in store. But if you're eager to buy a home in the new year, it pays to do whatever you can to increase your chances of getting a mortgage at a rate that's low enough to offset the higher home prices we're starting out with.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.