Why Is Your Credit Score So Important?

Your credit score is one of the first things a lender looks at when determining whether to approve your mortgage application. It gives them a quick snapshot of how responsible you’ve been with debt in the past. The higher your score, the more likely you are to get approved—and with better interest rates too.

A credit score of around 620 is often the minimum required for conventional loans, though some government-backed loans, like FHA loans, might accept lower scores. If your score is higher—think 700 or above—you’ll be in a stronger position. Lenders will view you as a lower risk, which could lead to more favorable loan terms.

If your credit score isn’t where you want it to be, don’t panic. There are steps you can take to improve it before applying for a mortgage. Start by checking your credit report for any errors or inaccuracies. You can dispute these and potentially get them removed, which can boost your score. Also, paying down outstanding debts and making sure you don’t miss any payments in the months leading up to your application will help.

Even if your score is on the lower end, having a larger down payment can sometimes balance things out in the eyes of a lender. This shows them that you’re committed to the purchase and less likely to default on the loan.

How Much Debt Is Too Much?

Your debt-to-income ratio (DTI) is another critical factor lenders consider. This ratio looks at how much of your monthly income goes toward paying off debt. The lower your DTI, the better your chances of qualifying for a mortgage.

Lenders usually prefer that your total monthly debts, including the mortgage payment, don’t exceed 43% of your gross monthly income. However, some might go as high as 50% if you have other strong financial factors, like a high credit score or significant savings.

To calculate your DTI, add up all your monthly debt payments—this includes things like credit card bills, car loans, student loans, and any other recurring debt. Divide that number by your gross monthly income (before taxes), and you’ll get your DTI percentage. For example, if your monthly debt payments are $2,000 and your income is $6,000, your DTI would be about 33%.

If your DTI is on the high side, consider paying off smaller debts before applying for a mortgage. Every bit counts, and lowering your DTI will make you more attractive to lenders. You might also look into ways to increase your income, even temporarily, as this can improve your ratio.

How Much Should You Save for a Down Payment?

While the credit score and DTI ratio are crucial, the size of your down payment also plays a big role in qualifying for a mortgage. Most lenders require a down payment of at least 3-5% of the home’s purchase price for conventional loans. However, if you’re able to put down 20% or more, you’ll likely have an easier time qualifying and can avoid paying private mortgage insurance (PMI), which adds to your monthly costs.

Saving for a down payment can feel overwhelming, but there are plenty of strategies to help you get there faster. Start by setting up a separate savings account just for your down payment fund, and make regular contributions. Cutting back on non-essential expenses and picking up side gigs can also help grow your savings.

If saving for a large down payment isn’t feasible for you right now, don’t worry—there are other options. Government-backed loans like FHA or VA loans often have lower down payment requirements. FHA loans, for example, allow you to put down as little as 3.5%, while VA loans for veterans can sometimes require no down payment at all.

But keep in mind that a larger down payment does have its benefits. Not only will it lower your monthly mortgage payments, but it can also show lenders that you’re financially stable and committed to the purchase. This could be the extra reassurance they need to approve your loan, especially if you’re on the borderline in other areas like credit or DTI.

Qualifying for a mortgage isn’t just about ticking boxes—it’s about showing lenders that you’re a reliable borrower who can handle the financial responsibility of homeownership. By focusing on improving your credit score, managing your debt-to-income ratio, and saving for a down payment, you’ll increase your chances of getting approved for the mortgage you need.

Understanding what lenders look for will help you feel more confident throughout the process. It’s all about preparation. The better you understand the steps involved, the smoother the path to homeownership will be. So, whether you’re just starting to think about buying a home or you’re already deep into the process, take these factors into account and get ready to make your dream home a reality.