Mortgage Availability Increased in March. Could You Qualify for a Home Loan?

by Maurie Backman | Updated July 19, 2021 - First published on April 25, 2021

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It may be getting a little easier to get approved for a mortgage.

During periods of economic crisis, getting a mortgage can be more difficult. After all, mortgage lenders need to protect themselves, so it's common practice for them to tighten borrowing standards to achieve that goal. Such has been the case throughout the pandemic, which has no doubt left many would-be homeowners frustrated.

But here's some good news -- it seems like mortgages are becoming a bit easier to get. Mortgage credit availability increased in March, according to the Mortgage Bankers Association's Mortgage Credit Availability Index. While that increase was modest -- 0.6% -- it's encouraging nonetheless. That said, there are some important steps you can take to increase your chances of getting approved for a mortgage. Here are two key moves to start with.

1. Boost your credit score

Your credit score speaks to how trustworthy a borrower you are. The higher your score, the more likely you'll be to repay your debts on time. As such, mortgage lenders look favorably on people with high credit scores and reward them not only with home loan approval, but competitive interest rates.

The minimum credit score needed to take out a conventional loan is 620, but many lenders want to see a higher score -- one in the mid-600s -- before they agree to loan you money to buy a home. And if you want the best mortgage rates out there, you'll generally need a score in the mid-700s or above.

So how do you boost your credit score? For one thing, pay all incoming bills on time, since your payment history is the most important factor in calculating your score. Also, try paying off a chunk of credit card debt or asking for a credit limit increase. Finally, review your credit reports for errors, and correct those that are working against you, like a delinquent debt that's been long settled.

2. Lower your debt-to-income ratio

Your debt-to-income ratio measures the amount of debt you have relative to your income. The lower that number, the easier it'll be to qualify for a mortgage. Generally speaking, lenders want to see a front-end ratio of 28% or less. Your front-end ratio is the amount of your monthly income that will go toward housing costs.

Meanwhile, lenders generally want a back-end ratio of 36% or less. Your back-end ratio includes all of your debt obligations, including your home loan. For example, if you earn $5,000 a month and owe $2,000 between your mortgage, car payment, and credit card minimums, your back-end ratio will be 40%.

How do you lower your debt-to-income ratio? Well, you could pay off some existing debt, boost your income, or do both. In our example, say you pick up a side job that pays you $1,000 a month on top of the $5,000 you were already earning. Suddenly, your back-end ratio drops to 33% ($2,000 divided by $6,000 is 33%)

The fact that mortgage lenders have been loosening up is a good thing for buyers. But if you want to get approved for a mortgage, you'll also need to present yourself as a solid candidate. By raising your credit score and lowering your debt-to-income ratio, you'll put yourself in a good position to secure financing for a home -- and check one major financial goal off your list.

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