The mortgage you can qualify for in six months depends on your credit score, debt-to-income ratio, employment history, mortgage terms and other qualification factors when you apply for the loan.
If you expect your credit score, monthly gross income and debt expenses or job to change over the next six months, then the mortgage amount you will be approved for may change. If you expect these factors to remain relatively consistent then the loan amount you will qualify for in six months should be similar to today. Below we outline how changes in each qualification requirement affects the mortgage you can afford in the future.
Credit Score. In short, the higher your credit score, the lower your mortgage rate and vice versa. If your credit score improves over the next six months, your mortgage rate may be lower and you may be able to afford a higher mortgage amount.
Conversely, if your credit score drops significantly, you may be required to pay a higher mortgage rate, which reduces the loan amount you qualify for. If your credit score is too low or if you experience a negative credit event such as a bankruptcy, default, foreclosure or short sale you may not be eligible for certain mortgage programs.
Debt-to-Income Ratio. Lenders limit how much of your monthly gross income you can spend on debt expenses such as your mortgage payment, property tax, homeowners insurance as well as other personal expenses such as credit cards and car, student and personal loans. The lower your non-housing related debt expenses, the higher the mortgage amount you qualify for.
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford based on your gross income and debt expense
If your monthly debt expense decreases over the next six months -- such as if you pay off a credit card bill or car loan -- your debt-to-income ratio improves and the mortgage you can afford increases. If your monthly debt payments increase, then the loan amount you will be able to afford decreases. This is why it is a good idea to pay off or pay down debt before you apply for a mortgage instead of increasing your debt balance.
Employment History. Lenders usually require that you have a two year job history before you apply for a mortgage although a one-to-two year employment history may be acceptable in certain situations. If you have a break in your employment or your type of employment changes in the next six months that may impact your ability to qualify for a mortgage.
It is fine for you to change companies or jobs but it is usually best if your type of employment or how you are paid remains the same. For example, mortgage qualification guidelines are different if you are self-employed as compared to being a W-2 employee.
Additionally, if you go from being paid on a salary or hourly basis to being paid primarily via commission or bonuses, you may be required to wait before you can be approved for a mortgage. This is why we recommend that you understand how any changes in your employment situation impact the mortgage you qualify for before you move jobs.
Mortgage Terms. Perhaps the least predictable factor that determines the mortgage you can qualify for in six months is your loan terms including your mortgage rate and closing costs. The lower your mortgage rate, the higher the loan amount you can afford and the higher your rate the lower your loan amount. So if mortgage rates go down over the next six months, the mortgage you can qualify for should increase but if rates increase in the future, the loan amount you can afford may decrease.
Because mortgage rates are impossible to predict, we do not recommend that you attempt to time when you apply for the loan. Instead, a better approach is to make sure that the qualification requirements that you have more control over -- including your credit score, debt-to-income ratio and job -- are as favorable as possible before you apply.
This may mean that you wait several months or you may decide you are better off applying now. Either way, we recommend that you contact multiple lenders in the table below to understand both the mortgage you qualify for today and in six months as qualification guidelines vary. Shopping lenders is also the best way to ensure that you find the best mortgage terms.
"B3-6-02, Debt-to-Income Ratios." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.