Want to buy a home in early 2022? Here’s how to prepare yourself to qualify for a loan.
Will 2022 be a good time to buy a home? It is too early to tell. This year, buyers have grappled with inflated home prices and limited real estate inventory, and things may not improve once the new year arrives.
But if you’re aiming to buy a home early next year, you’ll need to prepare yourself to qualify for a mortgage. Here are some steps you can take to increase your chances of getting approved before the end of 2021.
1. Increase your credit score
Your credit score speaks to how responsible you are as a borrower, so it makes sense for mortgage lenders to take this number into account when deciding whether you qualify for a home purchase loan. You need a credit score of at least 620 for a conventional mortgage, but to get a competitive interest rate on a home purchase loan, you’ll need a much higher score (ideally, a score at least in the mid-70s).
To raise your credit score quickly, try paying off some credit card debt, which will lower your usage percentage. This ratio measures how much credit you use at one time, and the lower it is, the higher your score will be.
At the same time, be sure to check your credit report for errors. Mistakes are very common, and if there’s an error on your credit report that reflects poorly on you (like a late account that doesn’t actually belong to you), correcting it can raise your score dramatically.
2. Pay off some debts
Paying off credit card debt will not only help your credit score. It can also reduce the debt-to-income ratio. This ratio measures how much debt payments you have in relation to your income.
A ratio that is too high indicates that you are already spending a lot of your income on continuing obligations, and it can be a red flag when you are trying to get a mortgage. Paying off some debt may help improve this ratio.
But it’s not just credit card debt worth addressing. If you have a high personal loan balance, paying it off may also help bring this ratio into a more favorable area.
3. Increase your income
With home prices rising, you may have to take out a higher mortgage than you normally would to buy your own place. But is your income high enough to support a larger loan amount? If you are not sure, you will increase your chances of getting approved for the mortgage you need by getting a second job. This way, your additional earnings will be calculated from your total income for qualification purposes.
There are a lot of different side businesses you can pick up. If you need something that gives you flexibility in your schedule, try to see if there’s a job available that you can do from home on your computer, like data entry. Or you can start driving for a passenger pickup service and take your passengers around at your convenience.
Some smart moves on your part can pave the way for mortgage approval by the end of the year. This means that you could end up in a much stronger position to buy a home once 2022 kicks off.