5 Tips For Getting a Mortgage in Today’s Housing Market

You want to beat the rising cost of homes and increasing interest rates by buying a home soon — but are you going to be able to get a mortgage?

The latest Case-Shiller housing data shows prices have gone up a little over 12% in just a year, and the National Association of Realtors’ latest numbers are even more optimistic, showing a nearly 14% year-over-year increase. Meanwhile, the rate for a 30-year mortgage has shot up by more than a percentage point in the past three months and is now hovering a bit over 4.5%.

The “but” here is that getting a mortgage, though easier than it was a couple of years ago, is still a challenge for many Americans. Data from the Ellie Mae Origination Insight Report shows that in July, the average mortgage applicant approved for a conventional loan had a FICO score of 759. Meanwhile, even the ones who applied and were rejected had FICO scores averaging 726. This is actually an improvement over last year, when borrowers had an average FICO score of 763. But the days of waltzing into a bank with a 640 FICO score and getting pre-approved on the spot are over.

(MORE: Housing Report: Tight Inventory, Still-Rising Prices)

Improve your credit score. ”Credit is getting a bit looser recently, but even people with high credit scores are being denied loans,” says Jed Kolko, economist atreal estate site Trulia.com, an observation that’s borne out by that Ellie Mae data. Order your credit report from annualcreditreport.com so you know what you’re dealing with, especially if you’ve never checked your credit before. Getting any mistakes corrected should be your first order of business. After that, look to lower your utilization ratio — the percentage of your available credit you’ve used at any given time. The typical rule of thumb is to keep it under 30%, but lower is better.

Don’t open any new cards. This is old advice, but it’s even more important now that lenders have such high expectations. You might think adding a new credit card would help your utilization ratio, but applying for credit shortly before or during the application process pulls down your credit score. It could be only a few points, but that could affect your rate and even whether you’ll be approved for a loan at all.

Put more money down. ”Zero-down loans are rare nowadays compared with the bubble years,” Kolko says. That said, don’t despair if you don’t have 20% of the purchase price saved up.

Pay down your debt. “Because home prices are rising faster than incomes, and also because mortgage rates are rising, the debt-to-income ratio will become a hurdle for more buyers,” Kolko warns. He says monthly payments have risen 20% in just a year thanks to the combination of rising home prices and interest rates.

Give yourself more time than you think you need. Improving your credit score and socking away a down payment takes time. Lin suggests giving yourself a six-month head start. In theory, credit report errors can be cleared up in 30 days or less, but an investigation last year found that getting even simple stuff fixed can drag on for months in some cases.