Don’t be discouraged if you were denied a mortgage last year. A few simple moves could set you on the path to approval this year.

When mortgage rates started dropping last year, buyers rushed to purchase new homes. If you attempted to do the same but were rejected, you may be inclined to sit tight, wait a few years, and try again. But actually, a few moves on your part could help you become a homeowner by the end of the year. Here’s what you need to do to get that mortgage application approved.

1. Boost your credit score

You need a minimum credit score of 620 to qualify for a conventional mortgage (though you may get approved for another type of loan, like an FHA loan, with a lower score). If your credit score needs work, you can raise it by paying all your incoming bills on time. Your payment history is the single most important factor in calculating your score, and being timely for many months in a row will help.

2. Shed some existing debt

If your monthly debts are too high relative to your monthly income, that could be a reason for a mortgage lender to reject your home loan application. As such, paying off some existing debt will lower your debt-to-income ratio, thereby making you a less risky borrower. And if you manage to pay off some credit card balances, your credit score may increase, too. Paying off an auto loan won’t have the same positive credit score effect, but it’ll still help lower your debt-to-income ratio.

3. Clean up your credit report

Even if your credit score is at or above 620, a red flag on your credit report could cause a lender to deny your mortgage application. Check your credit report for errors that could be working against you — for example, a severely delinquent debt you’ve since settled. Keep in mind that some items, like a bankruptcy filing, will stay on your credit report for seven to 10 years and there’s not much you can do about it. Rather, focus on the items you can change — for example, if you have a legitimate debt in collections, work to pay that off.

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4. Boost your cash reserves

The more assets you have, the more comfortable a lender is likely to be giving you a loan — and the less money you’ll need to ask to borrow. In the coming year, cut back on spending or take on a second job so you can boost your savings. That could allow you to make a larger down payment on a home. Or it may at least show a lender that if you were to lose your job, you’d have emergency cash available to keep up with your monthly mortgage payments.

5. Secure a steady source of income

There’s absolutely nothing wrong with making a living from the gig economy, but mortgage lenders have been strict about approving applicants whose income is variable in nature. This doesn’t mean you can’t or won’t get approved for a home loan if you’re self-employed. But if you’ve struggled already in that regard, it could help to secure a more stable income stream. You don’t have to give up your freelance lifestyle and take a salaried position instead. Rather, aim to get some of your clients to sign contracts so you can present proof of ongoing work — and income.

Being denied a mortgage is a harsh blow. Take these steps, and you may have much better luck if you apply again this year.



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