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During the pandemic, many Americans experienced some degree of financial upheaval. Thus, mortgage lenders have tightened their borrowing requirements to avoid taking excessive risks.
In recent months, the availability of mortgage credit has become increasingly available. But in November, lenders got a little tighter, causing the Mortgage Bankers Association’s mortgage availability index to drop 0.6%. Every time this index goes down, it indicates that it becomes a little more difficult to obtain a mortgage loan.
If you are looking to buy a home for the short 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 quite common, and while some don’t have a huge impact on your credit score, others could. If there is a default noted on your credit report that is not valid (i.e. you have always been up to date on that account), that alone could lower your credit score, making it mortgage lenders less likely to want to work with you.
Currently, credit reports are available free of charge on a weekly basis until April. If you check yours quickly and find an error, you will have ample opportunity to continue following until that error is corrected.
2. Pay off some of the credit card debt
A small credit card balance over your total spending limit may not hurt your credit score or make it very difficult to get a mortgage. But a larger balance might. If you are dealing with the latter, paying it off, or at least reducing it, might be to your advantage.
An important factor that goes into your credit score is your credit usage, or the amount of your available revolving credit that you are using at the same time. The higher your credit card balances, the more your usage will increase, compromising your score.
Meanwhile, it’s not just your credit score that lenders look at when they assess mortgage applicants. They also look at your debt-to-income ratio, which measures the amount of your monthly income spent on debt repayment. If this ratio is too high, you could be refused a mortgage. Eliminating some credit card debt could help improve this ratio.
3. Increase your income
Mortgage lenders want reassurance that you can keep track of your mortgage payment. If your income is not that strong, it might be beneficial to increase it with a second job.
There are many side activities you can choose from that could dramatically increase your income. Determine which type is best for you based on your schedule and skill set, then secure that second stream of income ASAP. If you can show a mortgage lender that it’s consistent, it could increase your chances of getting approved for a loan.
Mortgage credit availability may have declined a bit in November, but that doesn’t mean you might have a hard time getting a home loan. And if you follow these steps, you might find that you are able to not only get approved but also get attractive interest rate on this loan in the process.
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