During the heart of the pandemic, qualifying for an affordable loan was pretty easy for most home buyers. Rates repeatedly hit record lows and it was possible to get a 30-year fixed-rate mortgage for under 3.00% if you had reasonable financial credentials.
Things have changed, though. Rates have gone way up and are now over 5.00% on average for the popular 30-year loan option. This has obviously made borrowing much costlier.
That doesn’t mean would-be homeowners should give up on getting a reasonably priced mortgage, though. While no one is going to get a rate close to 3.00% anymore, it is possible to get the lowest cost loan possible in today’s market by taking these nine key steps.
1. Improve your credit score
Credit is the one of the most important things lenders look at when setting your rate. If you can improve your credit score, you’ll become a much more competitive borrower. A score above 720 to 740 can help you get the very best rates available at the time you’re borrowing.
Improving your credit score can be done by reducing the amount of your available credit used, becoming an authorized user on someone’s credit card that has a solid credit history, or asking your lenders to voluntarily remove negative information if you have generally been a good customer who pays on time but you have a mistake or two in your past.
2. Pay down your debt
Repaying your debt helps you improve your credit score, which can help you get an affordable loan. It also improves another key metric that lenders look at: your debt-to-income ratio. This is the ratio of debt relative to what you earn. The lower it is (which means the less debt you have), the more competitive your rate will be because you will be seen as a less risky borrower.
