Lenders Made It Harder to Get a Mortgage in November
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Lenders got stricter about mortgage loans in November. Will that trend continue?
Key points
- After months of loosening credit, mortgage lenders imposed tighter borrowing requirements in November.
- There are steps mortgage applicants can take to increase their chances of qualifying for a home loan, like checking for credit report errors.
During the pandemic, many Americans experienced some degree of financial upheaval. As such, mortgage lenders tightened up borrowing requirements to avoid taking on undue risk.
In recent months, mortgage credit availability grew increasingly available. But in November, lenders got a bit stricter, causing the Mortgage Bankers Association's Mortgage Credit Availability Index to fall by 0.6%. Any time that index drops, it's an indication that it's becoming a bit harder to get a mortgage.
If you're looking to buy a home in the near term, there are steps you can take to increase your chances of getting approved. Here are a few moves worth making.
1. Check your credit report for errors
Credit report errors are pretty common, and while some may not have a huge impact on your credit score, others could. If there's a delinquency noted on your credit report that isn't valid (meaning, you've always been current on that account), that alone could drag down your credit score, making mortgage lenders less likely to want to work with you.
Right now, credit reports are available for free on a weekly basis through April. If you check yours soon and find a mistake, you'll have ample opportunity to keep following up until that error is corrected.
2. Pay off some credit card debt
A small credit card balance relative to your total spending limit may not hurt your credit score or make it very difficult to get a mortgage. But a larger balance could. If you're dealing with the latter, paying it off, or at least whittling it down, could work to your benefit.
A big factor that goes into your credit score is your credit utilization, or the amount of your available revolving credit you're using at once. The higher your credit card balances are, the higher your utilization will climb, compromising your score in the process.
Meanwhile, it's not just your credit score that lenders look at when evaluating mortgage candidates. They also look at your debt-to-income ratio, which measures the amount of your monthly income that goes toward debt payments. If that ratio is too high, you could be denied a mortgage. Eliminating some credit card debt could help that ratio improve.
3. Boost your income
Mortgage lenders want reassurance you can keep up with your home loan payments. If your income isn't that robust, it could pay to increase it with a second job.
There are plenty of side hustles you can choose from that could boost your income substantially. Figure out what type is best for you based on your schedule and skills, and then secure that second income stream sooner rather than later. If you can show a mortgage lender that it's consistent, that could increase your chances of getting approved for a loan.
Mortgage credit availability may have dropped a bit in November, but that doesn't mean you're apt to have a hard time getting a home loan. And if you take these steps, you may find that you're able to not only get approved, but secure an attractive interest rate on that loan in the process.
Our Research Expert
Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
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