It was easier to get a mortgage in October. Do this to increase your chances of mortgage approval
There was a time at the start of the pandemic when obtaining a home loan became more difficult. Mortgage lenders have tightened their borrowing requirements in response to the economic crisis, and many potential buyers have struggled to move forward with their homeownership plans.
Lenders have since relaxed. In October, the mortgage credit availability index rose 0.1% from the previous month, reports the Mortgage Bankers Association. This means that it was slightly easier to get a mortgage in October than in September.
That said, the index is still 30% lower than where it was in February 2020, before the start of the pandemic. This means that if you want to buy a home, you will still have to put a lot of effort into promoting yourself as a serious mortgage candidate. Here’s how.
Boost Your Credit Score
Your credit score tells lenders how responsible you are. A high credit score means you typically pay your bills on time and don’t incur too much debt, while a lower score could set off a red flag that you can’t be trusted to pay off 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 number higher than that. To qualify for the best mortgage rates available, you will typically need to get your score to the mid or high point of 700.
If your credit score can improve, make sure you pay all of your bills on time and, if possible, pay off some existing credit card debt. At the same time, avoid applying for new loans before you are 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 increase quickly.
Pay off an existing credit card or loan balance
Another important factor that goes into mortgage approval is your debt to income ratio. This ratio measures how much of your current income is spent on debt repayment. The higher it is, the more worried a lender might be that you might not be able to meet your mortgage payments.
To reduce this ratio, try paying off an existing loan or credit card balance. You’d better target these, as less credit card debt could also help improve your credit score. Another option is to increase your income by finding a second job.
Save a decent down payment
The less you need to borrow to buy a home, the easier it will be to get a mortgage. Try to save enough money to shell out at least 20% of the purchase price of your home. It will also save you money in two ways.
First, the less you borrow, the less mortgage interest you will pay. Second, making a 20% down payment avoids private mortgage insurance, an expensive premium that makes home ownership more expensive.
The fact that mortgage lenders are slacking off and extending credit to more borrowers is a good thing. If you follow the steps above, you could put yourself in a great position to qualify for a home loan once you’re ready to apply.