Lenders got tougher on mortgage loans in November. Will this trend continue?
During the pandemic, many Americans have experienced some degree of financial turmoil. As such, mortgage lenders have tightened borrowing requirements to avoid taking on undue risk.
In recent months, the availability of mortgage loans has increasingly grown. But in November, lenders got tougher, causing the Mortgage Bankers Association’s Mortgage Credit Availability Index to fall 0.6%. Anytime this indicator goes down, it is an indication that it is becoming a bit more difficult to get a mortgage.
If you’re looking to buy a home in the near term, there are steps you can take to increase your chances of getting approved. Here are some moves worth making.
1. Check your credit report for errors
Credit report errors are very common, and while some of them may not have a significant impact on your credit score, others may. If a late payment noted on your credit report is invalid (meaning you’ve always been aware of that account), that alone can lower your credit score, making mortgage lenders less likely to work with you.
Currently, credit reports are available free of charge on a weekly basis through April. If you check it soon and find an error, you will have a great chance of continuing to continue until that error is corrected.
2. Pay off some credit card debt
A small credit card balance tied to a total spending limit may not hurt your credit score or make it too difficult to get a mortgage. But a greater balance can occur. If you’re dealing with the latter, paying it off, or at least cutting it back, can benefit you.
The big factor that goes into your credit score is your use of credit, or the amount of available revolving credit you use once. The higher your credit card balances, the more you use, putting your score at risk in the process.
Meanwhile, lenders don’t only look at your credit score when evaluating mortgage candidates. They also look at the debt-to-income ratio, which measures how much of your monthly income goes toward debt payments. If this percentage is too high, you may be denied a mortgage. Eliminating some credit card debt can help improve this ratio.
3. Increase your income
Mortgage lenders want reassurance that you can keep up with your home loan payments. If your income is not that strong, he may pay to increase it with a second job.
There are a lot of side problems that you can choose from that can boost your income significantly. Find out which type is best for you based on your schedule and skills, then secure a second income stream sooner rather than later. If you can show the mortgage lender that they are consistent, it may increase your chances of getting approved for a loan.
The availability of mortgage loans may have decreased a bit in November, but that does not mean that you are likely to have difficulty getting a loan to buy a home. And if you take these steps, you may find that you can not only get approved but also secure an attractive interest rate on that loan in the process.