While lenders are becoming less strict with borrowers, it can still be helpful to set yourself up for success.
the main points
- Availability of mortgage loans improved in December.
- Getting a mortgage is not a given, and it is important to know what steps to take to secure it.
When the COVID-19 pandemic first broke out and unemployment spread, mortgage lenders had to be careful when lending large amounts of money, understandably so. But fortunately for potential borrowers, lenders have loosened up a bit since then.
In December, the availability of mortgage loans increased, according to the Mortgage Bankers Association. Not only that, but it’s at its highest level since May 2021. And while mortgage credit is still not as available as it was before the pandemic, we’re approaching that point.
If you’re hoping to get a mortgage in the near term, it’s good to know that you may have an easier time thanks to the relaxed requirements. But nevertheless, it is important to present yourself as a strong borrower. Here’s how to do it in three important steps:
1. Increase your credit score
The minimum credit score required to qualify for a conventional mortgage is 620. But that does not mean that a 620 score guarantees you a home purchase loan.
First and foremost, some lenders have higher standards than others, so while one may approve your application with a 620 credit score, another may reject it. Furthermore, the higher your credit score, the lower the interest rate you will snag on your home loan. And seeing how you can borrow several hundred thousand dollars, that’s an important thing.
There are different steps you can take to boost your credit score. One thing worth focusing on is your payment history. Submitting all your invoices on time is a great way to raise your score.
It’s also a good idea to check your credit report for errors. Correcting harmful errors (such as overdue debt you didn’t incur in the first place) can lead to a rapid rise in your credit score.
2. Pay off some debts
If you owe money on your credit cards, paying some or all of your balance can help in two ways. First, the less credit card debt you owe, the higher your credit score.
Furthermore, mortgage lenders look closely at the debt-to-income ratio when determining whether or not you are a solid borrower. This ratio measures how much income is monopolized by outstanding debt payments.
As you might imagine, if this ratio is high, it sends a message to lenders that you are already borrowing too much, and you probably shouldn’t add a mortgage into the mix. But if you do pay off some credit card debt, you can lower that percentage and give lenders more confidence in the fact that you’re not overextended.
3. Increase your profits
The amount of money you need to qualify for a mortgage depends on the amount of the loan you need. As you might suspect, it takes a higher income to qualify for a $500,000 mortgage than a $250,000 mortgage. But either way, increasing your earnings is a good thing to do if you plan to place an order.
You can increase your earnings by researching salary data for your business and making sure that you are getting a fair wage. Or you can have a side hustle and increase your income this way.
While the availability of mortgage credit may be open, this does not automatically mean that you will be approved for a home loan when you want it. If you want to improve your chances of getting approved by a lender, make sure you have a high credit score, a minimum amount of debt, and a solid income.
Historic opportunity to save thousands from your mortgage
Chances are that interest rates will not remain at multi-decade lows for much longer. That’s why taking action today is so important, whether you want to refinance and lower your mortgage payments or you’re ready to start the process of buying a new home.
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