Lenders may be getting stricter, but all isn’t lost.
- Most home buyers need a mortgage to purchase a home.
- If you’re worried about qualifying for one, here are some steps to take.
- If you can improve your credit, lower your debt, and add to your income, you will have an easier time getting mortgage approval.
When the U.S. housing market crashed in 2008, a big reason was that many homeowners had gotten in over their heads, taking on mortgages they couldn’t afford. Since then, mortgage lenders have gotten stricter about approving borrowers, and that’s a very good thing.
But sometimes, stricter borrowing requirements can be a challenge for applicants. It may be that you’re ready financially to buy a home, but you’ve gotten rejected for a mortgage regardless.
In August, the Mortgage Bankers Association’s Mortgage Credit Availability Index dropped compared to the month before. That means it was harder to qualify for a mortgage in August compared to July.
If you’re looking to buy a home, and you don’t have a heaping pile of cash lying around to cover that purchase, then there’s no question about it — you’ll need a mortgage. Here are some steps you can take to increase your chances of getting approved even as lenders are tightening up their standards.
1. Boost your credit score
Your credit score is a measure of how trustworthy you are as a borrower. The higher that number, the less risk a given mortgage lender will think it’s taking on in loaning you money to buy a home. And so if your credit score could use work, boosting it could be your ticket to mortgage approval.
Now you should know that it takes a minimum credit score of 620 to qualify for a conventional mortgage. Some mortgage programs, like FHA loans, specifically work with borrowers whose credit isn’t that strong.
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But a credit score of 620 isn’t guaranteed to get you a mortgage, and you may not end up with such a great borrowing rate with that score. So if you really want a chance at an affordable mortgage, aim to get your credit score into the 700s — ideally, into the mid-700s or higher.
2. Pay off some debt
Your debt-to-income ratio is another measure mortgage lenders use to assess loan candidates, and it measures how much debt you have relative to your income. The lower that ratio, the more comfortable a lender is apt to be with a mortgage, so work on paying off some existing debt to bring that ratio down.
If you’re going to pay off debt, though, focus on credit card debt. Not only is it probably your most costly, but having too much of it could drag your credit score down.
3. Grow your income
Before your lender gives you a mortgage, it wants to make sure you earn enough money to cover the payments that come with it. Boosting your income could make it easier to qualify for the mortgage you want.
Right now, the labor market is strong, so it’s a good time to negotiate a raise. You can also boost your income by lining up a second job.
While mortgage credit availability may have declined in August, that doesn’t mean you’re apt to struggle to get your mortgage application approved. But if you’re worried, take these steps to increase your chances of success.
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