With rates possibly falling, you’re finally ready to apply for that mortgage loan that will allow you to finance the purchase of your dream home. But what do you need to qualify for a mortgage in 2024?
Start with your credit score
Your three-digit credit score has always been a key factor in whether you’ll qualify for a mortgage and at what interest rate. That hasn’t changed in 2024.
FICO credit scores range from 300 to a high of 850. The higher your score — which tells lenders that you’ve done a good job handling your credit and paying your bills on time — the more likely you are to qualify for a mortgage at a low interest rate. Lenders typically consider FICO scores of 740 or higher to be very good and those of 800 or higher excellent. With a score in that range, you can expect to qualify for a mortgage with the lowest possible interest rate.
But don’t fret if your score is lower. You can still qualify for a mortgage with a credit score that’s less than excellent. If your score is at least 640, you can typically qualify for a mortgage from most lenders, though you’ll probably have to pay a higher interest rate.
If you need to improve your score, start a new habit of paying your bills on time each month. Over time, your FICO score will gradually but steadily improve.
Debt-to-income ratio
Lenders will continue looking at your debt-to-income ratio in 2024. This ratio measures how much of your gross monthly income your monthly debts consume. Most lenders want your total monthly debts, a figure that would include your new mortgage payment, to equal no more than 43% of your gross monthly income.
If your debt-to-income ratio is much higher than that 43% mark, you might struggle to convince lenders to approve you for a mortgage. And if you do qualify for a home loan, you’ll be hit with higher interest rates.
Fortunately, you can improve your debt-to-income ratio by paying down your credit card bills or paying off other loans, which will reduce your minimum monthly payment. You can also work on boosting your monthly income to help reduce that ratio.
Build your savings
Mortgage lenders also want borrowers to have built a solid level of savings in 2024. Though it varies, most lenders will want you to have enough savings to cover at least two months of your mortgage payment. That way, if you suffer a temporary hit to your cash flow, you’ll have enough savings to cover those payments.
Note that these funds are in addition to the money you’ll need to save to cover your down payment and closing costs.
If you can boost these three financial areas, you’ll increase your odds of qualifying for a mortgage at a low interest rate in 2024.
We welcome the opportunity to put our accounting expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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