How to Tell If You’re Ready to Apply for a Mortgage or Auto Loan
Being “ready” for a mortgage or auto loan does not mean your credit history and finances need to be perfect. All that’s required is for your lender to believe you can pay back the loan you want to take on.
Lenders look at a few core areas when deciding whether to approve a loan: your credit history, your debt-to-income ratio, your income consistency, and, for some loans, your down payment or equity.
Your Credit History Is Solid Enough to Support the Loan
Mortgage and auto lenders use your credit score to determine how well you manage debt. While minimum scores can vary by loan type and lender, general ranges include:
620–639: Minimum range for many conventional or FHA mortgages
640–699: Considered average to good for both auto and mortgage lending
700 and above: Typically qualifies for better rates and more flexible terms
Lenders also review your credit report for payment history, credit utilization, the age of your accounts, and any serious issues like collections or charge-offs. Even if your score is technically high, recent missed payments or a short credit history can still be red flags.
Applicants in or near the lower range shouldn’t lose hope. Steady on-time payments and low revolving balances can help you qualify, even if your score isn’t in the top tier.
Your Debt-to-Income Ratio Is Within Reach
Your debt-to-income ratio, or DTI, compares your monthly debt payments to your gross monthly income. Lenders use it to evaluate whether you can comfortably make payments if the new loan is added to your monthly budget.
Below 36%: Generally preferred by most lenders
36%–43%: Still common for mortgages, especially FHA and VA loans
Up to 45–50%: Often acceptable for auto loans, depending on credit and down payment
Debts include credit card minimums, student loans, auto loans, personal loans, and any other fixed monthly obligations. They do not take into account your rent or daily expenses.
Keeping your DTI lower improves approval chances and makes your monthly budget easier to manage once the loan is active.
Your Income Is Verifiable and Consistent
Lenders want to see that you have a reliable way to repay the loan. That usually means a steady job or a consistent income history, with documentation to back it up.
Most mortgage and auto lenders look for two years of employment history in the same line of work. If you’re self-employed, you’ll likely need two years of tax returns showing stable or increasing income. Tip-based income or contract work can also qualify, but it needs to be reported and well documented.
You’ll usually need to provide W-2s, recent pay stubs, or full tax returns depending on the loan type. If your income has major fluctuations or you’ve recently changed industries, the lender may ask for additional information.
Your Down Payment or Equity Position Is Strong Enough
Depending on the type of loan, you may need a down payment or, in the case of home equity loans and HELOCs, a certain amount of equity in your home to qualify.
Mortgage loans: Many programs allow down payments as low as 3–5%, but 10–20% down can improve your rate and lower mortgage insurance
Auto loans: Some borrowers qualify with $0 down, but bringing cash to the table often improves your odds, especially with average or rebuilding credit
Home equity loans and HELOCs: You’ll typically need at least 15–20% equity left in your home after the loan is added; most lenders cap the combined loan-to-value (CLTV) at 80–90%
In general, the more you’re able to put down or the more equity you have, the lower the lender’s risk and the better your loan terms are likely to be.
You Understand the Monthly Payment and Budget Impact
Loan approval is based on your documented ability to repay, but that doesn’t always align with your personal comfort level. After you do qualify, be sure you feel confident in your ability to fit the new monthly payment into your current budget.
You may also want to consider how your estimated payment compares to your other recurring expenses and savings goals. Ideally, a mortgage or auto loan shouldn’t crowd out your emergency fund contributions, retirement savings, or other key priorities.
Providing Monroe Borrowers Local Support for Home Loans and Auto Loans
If you want to talk through your application or review your options, Ouachita Valley Federal Credit Union offers local loan guidance without the pressure. Contact us at 318.387.4592 to learn about our mortgage and auto loan options or become a member today.
