Qualifying for a Mortgage Has Gotten Easier, but You'll Still Need to Do These Things to Get Approved

by Maurie Backman | Published on Sept. 16, 2021

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Lenders have loosened their borrowing standards, but that doesn't mean getting a mortgage will be easy.

During the pandemic, many mortgage lenders grew stricter about giving out home loans. The logic was that they had to protect themselves at a time when unemployment was rampant and economic uncertainty abounded.

But last month, mortgage credit availability increased, according to the Mortgage Bankers Association. That means it became easier for borrowers to qualify for a mortgage.

If you're looking to buy a home in the near term, that's clearly good news. But you'll still need to make a solid effort to present yourself as a strong borrowing candidate. Here are the steps you'll have to take to do that.

1. Have a good credit score

You'll need a minimum credit score of 620 to qualify for a conventional home loan. But some lenders may insist on a higher score to get approved for a mortgage. And if you manage to get your score into the mid-700s or higher, you might snag the best mortgage rates available.

If your credit score could use a boost, make sure to pay all incoming bills on time and see if it's possible to pay off a chunk of your existing credit card debt. Doing so could directly benefit your score. It also makes sense to check your credit report for errors. Correcting mistakes that are working against you could bring your score up pretty quickly.

2. Have a low debt-to-income ratio

Your debt-to-income ratio measures the amount of debt you have relative to your monthly income. The lower it is, the more likely you are to get approved for a home loan. Paying off existing debt is the fastest way to lower your debt-to-income ratio. And if you're going to pay off any debt, target your credit card debt, since that could help your credit score, too.

3. Have a steady job

You'll need a reliable source of income to qualify for a mortgage. If you're new to your job, you may want to wait a few months before you apply for a mortgage. That said, if you've recently gotten a new job within an industry you've worked in for years, a lender may not hold the fact that you haven't been there long against you. You may, however, be asked to provide a letter from your employer speaking to the fact that your job is stable.

4. Have money available for a down payment

Some mortgage lenders will accept as little as 5% down when you buy a home, but you'll usually need more like 10% to close on a home loan. And if you don't come to your closing with a 20% down payment, you'll have to pay private mortgage insurance, a costly premium that makes owning your home more expensive.

If you don't have much money available for a down payment, you can look at alternate loan programs that allow you to buy a home with less money down. These include:

But it could also pay to put your home-buying plans on hold until you have more money saved up. If you make a minimal down payment, you'll have to take out a larger mortgage (which means higher monthly payments and more interest charges all in), and it will take you a lot longer to build equity in your home.

It may be getting a bit easier to qualify for a mortgage, but you'll still need to set yourself up as a prime candidate. Take these steps so you're able to get the financing you need to purchase a place of your own.

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