It Was Easier to Get a Mortgage in August, and These Moves Could Help You Get One Now

by Maurie Backman | Published on Sept. 29, 2021

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A couple take a break from moving into their new home to play with their dog.

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Mortgage credit availability increased last month. Here's how to increase your chances of home loan approval.

During the pandemic, many mortgage lenders made the decision to tighten their borrowing requirements to protect themselves from losses. But it's been getting easier to qualify for a home loan. In August, mortgage credit availability rose by 3.9%, according to the Mortgage Bankers Association. And that's good news for borrowers across the board.

Still, if you're thinking of buying a home in the near term, there are specific steps you can -- and should -- take to increase your chances of mortgage approval. Here are a few to focus on.

1. Boost your credit score

Your credit score is one of the most important factors lenders take into account when deciding if you're a viable loan candidate or not. Generally, you need a minimum credit score of 620 to get approved for a conventional mortgage. Some lenders, however, may want a higher score.

Plus, if you want to qualify for a competitive mortgage rate, you'll want to get your score into the mid-700s or higher. If you're not there yet, you can improve your score by paying your bills on time and eliminating some existing credit card debt (the more of that you have relative to your total revolving credit limit, the more your score gets dinged).

Another thing worth doing is checking your credit report for errors. Correcting mistakes (like debts in your name that you never actually racked up) could help your score improve quickly.

2. Lower your debt-to-income ratio

Your debt-to-income ratio measures how much of your monthly income goes toward debt obligations, and it can be just as important as your credit score in qualifying for a mortgage. If you currently have a lot of debt, you have two choices for improving that ratio -- pay some off or boost your earnings with a second job.

3. Save for a down payment

The more funds you have available to put down on a home, the less risk your lender will take on because you won't be borrowing as much. Many lenders will let you put down 10% on a conventional mortgage, and some may agree to as little as 5% down.

A better bet, though, is to aim to put down 20% of your home's purchase price at closing. That way, you'll avoid private mortgage insurance, a costly premium that makes your housing payments more expensive.

4. Have a steady source of income

It's a good idea to wait until you're established at your job to apply for a mortgage. Lenders want reassurance that you not only have an income right now, but that you're likely to maintain that income going forward.

This isn't to say that you can't apply for a mortgage if you've recently gotten hired somewhere. In fact, if you're new to your job but that role falls within the same industry you've worked in for years, it shouldn't be a problem. But if you only have a handful of months of working experience under your belt, some lenders might hesitate to loan you money.

The fact that mortgage credit availability increased last month is a good thing. But don't just bank on that and assume you'll breeze through the application process. Instead, make sure to address these key items to increase your chances of success.

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