Housing markets are as competitive as ever right now, and getting approved for a mortgage is suddenly a much harder task. More and more lenders are choosing to only issue mortgages to borrowers with stellar credit histories.
Whether you’re applying for a conventional, FHA, VA, or USDA loan, the minimum qualifications will fall somewhere in the ranges below — but you’ll want to make sure you’re well above them to boost your chances at qualifying.
Min. down payment: 0% to 3.5%
Income: 12 to 24 months of steady, ongoing income
Credit score: At least 620 for most loans, but sometimes lower
Max Debt-to-income ratio: 36% to 50%
If you don’t meet these requirements yet, start taking steps to save more, pay down debt, stabilize or increase your income, and improve your credit score.
2. Establish your homebuying budget
Why it’s important: You’ll know what you can afford before you set your heart on a particular home or location.
Opinions differ on whether it’s smarter to stretch your budget for the better home or compromise to leave yourself more financial breathing room. Think about your personal risk tolerance and safety net when making this decision.
3. Compare offers from multiple lenders
Why it’s important: Getting multiple offers can save you thousands of dollars.
Small differences in interest rates can add up to thousands of dollars in interest over the life of a loan. And with thousands of mortgage lenders in the United States, there’s no excuse not to shop around.
A lower interest rate also increases your buying power. Shopping around, then, can mean the difference between affording your dream home or losing a bidding war. See how much a 1% difference can make.
Credible can help with this process. You can securely submit your application details to several lenders at once to save time and find a better deal.
4. Get pre-approved
Why it’s important: It shows sellers your purchase offer is likely to close.
In-person closing has become less common since the pandemic began. If your lender offers remote closing, you may need a webcam on your computer or phone to complete the process. A notary can verify your identity and witness your signature in states that allow remote online notarization via video call.
Even if you will not be finalizing your loan this way, you may receive all your closing documents electronically and sign most of them online. Ask your lender to send these documents along with your closing disclosure so that you have three days to carefully review everything, ask questions, and can make any necessary corrections before your closing date.