Mortgage Qualifications: How to Qualify for a Home Loan

Though each lender might be different, knowing the minimum mortgage qualification requirements is a good place to start when you’re thinking about buying a home.

How to qualify for a mortgage

The type of mortgage you’re applying for determines the minimum requirements you’ll have to meet for your down payment, credit score, and debt-to-income ratio.

Find out what type of loan you might qualify for or what aspects of your finances you’ll need to improve to get a better shot at qualifying for a mortgage.

Keep in mind: The minimum down payment, minimum credit score, and maximum DTI shown in the table apply to mortgages used to purchase a primary residence. While you can use a conventional loan or a jumbo loan to purchase a home for another purpose, you might need a larger down payment, a higher credit score, more cash reserves, or all three.

Learn More: Thinking About Buying a Second Home? Here's How It Works

Qualifying for a conventional loan

Of all the types of mortgage loans, conventional loans are the most common. You can get them from almost any lender.

Here are the minimum requirements to qualify for a conventional mortgage:

• Down payment: The minimum down payment with a conventional mortgage is 3%. There is no minimum borrower contribution, which means you can use gift funds or a grant toward your down payment as long as you’re buying a single-family home that will be your primary residence.
• Credit score: You typically need a credit score of at least 660 if you’re putting less than 25% down and a score of 620 or more if you can pay 25% or more in a down payment. If you don’t have a credit score at all, though, you might be able to qualify by demonstrating a steady history of at least two other types of payments, such as rent, car insurance, or utilities.
• Debt-to-income ratio: You might be able to qualify for a home loan with a DTI ratio as high as 45%, but Freddie Mac advises borrowers’ DTI be no greater than 36%.
• Mortgage insurance: Lenders typically require borrowers who put down less than 20% to buy private mortgage insurance. Instead of paying PMI, you might be able to get an 80-10-10 loan where you put down 10%, get a first mortgage for 80%, and get a second mortgage for the remaining 10%.

Learn More: Here's What You Need to Get a Conventional Loan

Qualifying for a Jumbo loan

If you want to borrow more than $766,550 to buy a single-family home in 2024, you will need a jumbo loan in most parts of the country. In high-cost areas, you might be able to borrow up to $765,600 before you need a jumbo loan.

Here are the minimum requirements to qualify for a jumbo mortgage:

• Down payment: You will usually need to put down 10% to 20% on a jumbo loan, but 5% might be acceptable to some lenders on smaller jumbo loans. Since these loans are riskier to lenders, they want borrowers to invest more of their own funds upfront. You might also need 12 to 18 months of cash reserves after closing.
• Credit score: Your credit score should be at least 680 for smaller jumbo loans and at least 720 for larger jumbo loans.
• Debt-to-income ratio: Jumbo loans require a DTI ratio no higher than 40%, though at least one major jumbo lender allows a DTI as high as 42%.
• Mortgage insurance: Lenders will likely require you to pay for private mortgage insurance if you put down less than 20% on a jumbo loan. Instead of paying PMI, you might be able to get subordinate financing (a second loan).

Keep Reading: Compare Today's Jumbo Mortgage Rates 

Qualifying for a VA loan

Military service members, veterans, and surviving spouses might qualify for a mortgage guaranteed by the Veterans Administration. These loans are usually easier to qualify for than any other type of mortgage.

Here are the minimum requirements to qualify for a VA mortgage:

• Down payment: You can get a VA loan with 0% down. You don’t need any cash reserves either.
• Credit score: If you don’t have a credit score, you can get approved with alternative or nontraditional credit.
• Debt-to-income ratio: VA lenders use 41% as a guide for the upper limit of a borrower’s DTI. Borrowers with a higher DTI can still qualify if their other borrower characteristics are strong. Examples include having excellent credit, significant cash reserves, and satisfactory homeownership experience.
• Mortgage insurance: VA loans do not have monthly mortgage insurance payments for low down payment borrowers. Instead, they have a funding fee that you can pay in cash at closing or roll into your loan. This fee is 2.3% for first-time VA military borrowers with no down payment.

Qualifying for a FHA loan

Loans insured by the Federal Housing Administration help homebuyers with lower credit scores, lower incomes, or higher debt buy homes when they don’t qualify for a conventional home loan.

Here are the minimum requirements to qualify for an FHA mortgage:

• Down payment: You can put down 3.5% on an FHA loan if your credit score is at least 580.
• Credit score: You can qualify for an FHA loan with a credit score as low as 500, but you will need a 10% down payment.
• Debt-to-income ratio: For most borrowers, the maximum DTI will be 43%. However, you can have a debt-to-income ratio as high as 50% with a credit score of 580 or higher and cash reserves.
• Mortgage insurance: The FHA requires all borrowers to pay an up-front mortgage insurance premium of 1.75% of the loan amount. You can pay it in cash at closing or roll the cost into your loan. Another one of the requirements for an FHA loan is that borrowers have to pay monthly mortgage insurance premiums. The amount and duration depend on your down payment and loan term. For example, it’s 0.85% annually of the amount borrowed if you put down less than 5%, and you’ll pay these premiums for the life of the loan.

Qualifying for a USDA loan

Section 502 direct single-family housing loans help very low and low-income borrowers in rural areas buy homes. They are for borrowers who can’t get a home loan from other sources.

Here are the minimum requirements to qualify for a USDA mortgage:

• Down payment: No down payment is required to buy an existing home. New construction homes sometimes require 10% down. If you have more than $15,000 in non-retirement savings, you’ll need to contribute toward the loan.
• Credit score: Nontraditional credit is acceptable for borrowers without a credit score. If your credit score is less than 640, lenders will take a careful look at the items on your credit report to check for delinquent payments and other indicators of risk.
• Debt-to-income ratio: What the USDA calls your “total debt” or TD can’t be more than 41% of your income unless you have “compensating factors” such as a history of being able to meet a higher monthly obligation.
• Mortgage insurance: USDA loans have a 1% loan guarantee fee. The lender can pay this fee or pass it on to the borrower. It can be paid at closing or rolled into the loan. These loans also have an annual fee of 0.35% of the loan amount.

What you need to qualify for a mortgage

When you apply for a mortgage, lenders want to know that you can repay the loan through a steady income that isn’t already consumed by debt payments. They also want to see that you have the credit to repay it, as demonstrated by a multiyear history of reliably making payments.

DTI

Your DTI, or debt-to-income ratio, helps lenders understand how much of your income your monthly debt takes up. Here’s how DTI is calculated:

(Total monthly debt) ÷ (Gross monthly income) x 100 = DTI

There are two types of DTI that mortgage lenders typically use:

1. Front-end ratio: Your proposed monthly housing payment as a percentage of your monthly income. The maximum front-end DTI will be about 10 to 12 percentage points lower, or 31% to 36%.
2. Back-end ratio: Your current monthly debt payments plus your proposed monthly housing payment as a percentage of your monthly income. The maximum back-end DTI depends on the loan type, credit score, and other factors like documented cash reserves, and is usually 41% to 50%.

Credit

In general, any score above 700 is considered a good credit score. However, to get the best mortgage rates, you’ll want your score to be 740 or higher. And to get the lowest mortgage insurance premiums, you’ll need a score of 760 or higher.

Here are the important aspects that make up your credit score:

• On-time payments: Making payments on time accounts for 35% of your score.
• Credit utilization ratio: This is the percentage of your available credit that you’re using and can account for up to 30% of your score. The lower your credit utilization, the better.
• Credit history: The length of your credit history (longer is better) makes up 10% of your score.
• Credit mix: The mix of credit types you have (more is better) makes up 15% of your score.
• Credit inquiries: The number of inquiries on your credit report makes up 10% of your score. Having fewer recent inquiries is better.

Find Out: Can You Buy a House with Bad Credit?

Income

Lenders might also look at your income when considering you for a mortgage. No matter what type of home loan you want, your income should be:

1. Steady: From a lender’s perspective, a steady income means you’ve received money consistently from the same line of work or the same source over the last two years, and you expect to continue receiving it for the next three years (two years for USDA loans).
2. Verifiable: Depending on your income source, acceptable documentation typically includes W-2 forms and tax returns.
3. High enough: Your income should be high enough to manage your new mortgage payment and cover all other mortgage costs.

Down payment

With a down payment of less than 20%, you might have to pay for mortgage insurance. Many borrowers accept this trade-off because it allows them to buy a home sooner. The smaller your down payment and the lower your credit score, the more you’ll pay for mortgage insurance.

Making a larger down payment could also mean having a smaller emergency fund. Even if your loan doesn’t require you to have cash reserves after closing, you’ll want a robust emergency fund so you can afford surprise home repairs and so you won’t lose your home if you get laid off.

Documentation

Qualifying for any mortgage means proving your financial responsibility to lenders. To do that, you’ll need to document your income and assets.

Getting this information together before you start shopping for a home can help you get a fast mortgage pre-approval so you can bid on homes with confidence and enjoy a smooth closing once a seller accepts your purchase offer.

Proof of income

Tax returns are the main way lenders document that borrowers have enough income to buy a home, but some forms of income require additional proof.

Here are the income documents your lender might ask for when underwriting your mortgage:

• Copies of your signed and filed tax returns, including all applicable schedules, for the most recent two years
• Paystub from the last 30 days showing year-to-date income
• W-2 forms from the past two years
• Court decrees for child support or alimony you receive
• Benefit verification letter or copy of insurance policy for long-term disability income
• Award letter or proof of current receipt for Social Security benefits
• Award letter and proof of current receipt for Supplemental Security Income (SSI)
• Employment offer or contract (if you have a new job)
• Employer documentation of severance package or retirement package
• Verification of foster care income
• Benefit letter for public assistance income
• Proof of pension income
• Royalty contract, agreement, or statement for royalty income
• Copy of trust agreement or trustee’s statement for trust income
• Letter or distribution form from the Veterans Administration for VA benefits
• Profit and loss statement for self-employed borrowers

Find Out: What Are No-Doc Loans? How to Get a No-Income-Verification Mortgage

Proof of assets

Account statements are the main way lenders document borrowers’ assets, but some assets require additional verification.

Here are the asset documents your lender might ask for when underwriting your mortgage:

• Bank account statements for the most recent two months
• Brokerage account statements for most recent month (or most recent quarter)
• Retirement account statements for most recent month (or most recent quarter)
• Copy of insurer’s check or payout statement for cash value of a vested life insurance policy
• Proof of the source of any large deposits to show that the funds were not borrowed
• Letter from trust manager or trustee for trust account funds
• A gift letter from the donor to document gift funds being used toward the down payment, closing costs, or financial reserves
• Copy of award letter or legal agreement and canceled check or bank statement for grant funds
• Documentation of employer assistance
• Copy of executed buy-out agreement for employee relocation
• Copy of rental/purchase agreement for rent credit for option to purchase arrangements, and copies of borrower’s canceled rent checks for the last 12 months
• Proof of ownership, value, transfer, and receipt of proceeds for the sale of personal assets

Note: Credible Operations, Inc. does not offer every type of mortgage outlined in this article.