Am I financially ready to take out a home loan?

Do you feel ready to own your home, but are you financially ready for a mortgage? If you want to know how close you are to being able to get a home loan, you’ll want to look at how your recent credit, debt, and financial history stacks up and what steps you may need to take to improve them.

Where are my finances?

Mortgage-ready homebuyers generally have similar financial profiles. This often means:

  • Upper credit scores.
  • Reduction in debt-to-income ratios (DTIs).
  • No foreclosures or bankruptcy in the last seven years.
  • No serious delinquency* during the last 12 months.

Depending on your financial profile, you could be mortgage, almost ready for the mortgage Where not ready for mortgage currentlybased on base subscription Freddie Mac standards used in a 2021 Analysis of Young Adult Mortgage Readiness. The table below offers a quick overview of how these factors can affect your mortgage readiness.

*Major delinquency defined as mortgage payments over 120 days past due.

If you’re not ready for your mortgage today, that’s okay. You can take steps to improve your finances over time.

What can I do about my credit score?

Your credit score summarizes your credit profile and predicts the likelihood that you will repay future debts. Credit scores change often, as does the information in your credit history.

If your credit score puts you in the almost ready for the mortgage Where not ready for mortgage currently group, here are the steps you can follow to build your credit history and improve your score. These include:

  • Pay your rent on time and work with your property manager to make sure those payments are reported to credit bureaus.
  • Pay your credit cards, student loans and car payments on time.
  • Keep your credit card balances low. Pay your credit card bill in full, if you can.

If you need to build or rebuild your credit, be patient. The best practice is to review your credit regularly and manage it wisely over time.