It Was Easier to Get a Mortgage in October. Do This to Increase Your Chances of Mortgage Approval
Mortgages are becoming easier to get, but you may still need to work hard to snag one yourself.
- Mortgage credit availability increased in October compared to September.
- Improving your credit score, paying off debt, and saving a down payment can help you get approved for a home loan.
There was a point early on in the pandemic when getting a home loan became more difficult. Mortgage lenders tightened up borrowing requirements in response to the economic crisis, and many would-be buyers struggled to move forward with their homeownership plans.
Lenders have since loosened up. In October, the Mortgage Credit Availability Index rose 0.1% from the previous month, reports the Mortgage Bankers Association. That means it was slightly easier to get a mortgage in October compared to September.
That said, the Index is still 30% lower than where it sat in February 2020, before the pandemic began. That means that if you want to buy a home, you'll still need to make a strong effort to present yourself as a solid mortgage candidate. Here's how.
Boost your credit score
Your credit score tells lenders how responsible a borrower you are. A high credit score means you generally pay your bills on time and don't take on too much debt, while a lower score could raise a red flag that you can't be trusted to repay a mortgage.
You'll need a minimum credit score of 620 to qualify for a conventional mortgage, but many lenders will want to see a higher number than that. To qualify for the best mortgage rates available, you'll generally need to get your score up to the mid- or upper 700s.
If your credit score could use a boost, make sure to pay all of your bills on time and, if possible, pay off some existing credit card debt. At the same time, avoid applying for any new loans until you're ready to get a mortgage, and check your credit report for errors. If you find a mistake that works against you, having it corrected could help your score rise quickly.
Pay off an existing credit card balance or loan
Another big factor that goes into mortgage approval is your debt-to-income ratio. That ratio measures how much of your current income goes toward debt payments. The higher it is, the more a lender might worry that you won't manage to keep up with your mortgage payments.
To lower that ratio, try paying off an existing loan or credit card balance. You're better off targeting the latter, since less credit card debt could also help your credit score improve. Another option is to raise your income by getting a second job.
Save up a decent down payment
The less money you need to borrow in the course of buying a home, the easier it might be to get a mortgage. Aim to save enough money to put down at least 20% of your home's purchase price. Doing so will also save you money in two ways.
First, the less you borrow, the less mortgage interest you'll pay. Secondly, making a 20% down payment means avoiding private mortgage insurance, a costly premium that makes owning a home more expensive.
The fact that mortgage lenders are loosening up and extending credit to more borrowers is a good thing. If you take the above steps, you might put yourself in a great position to qualify for a home loan once you're ready to apply for one.
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