To qualify for a home loan, you need to meet requirements in four main areas: credit score, income and debt levels, down payment, and documentation. The exact thresholds depend on the type of loan you pursue, but lenders across the board want to see that you earn enough to handle monthly payments, that you don’t carry too much existing debt, and that you have some savings to put toward the purchase.
Credit Score Minimums by Loan Type
Your credit score is the first filter lenders use. Conventional loans, which are the most common type and aren’t backed by a government agency, typically require a minimum score around 620, though some lenders set their own floors higher. A stronger score gets you a better interest rate, which can save tens of thousands of dollars over the life of the loan.
FHA loans, which are insured by the Federal Housing Administration, are more flexible. You can qualify with a credit score as low as 580 if you put at least 3.5% down. Scores between 500 and 579 are still eligible, but you’ll need a 10% down payment. VA loans, available to eligible military members and veterans, don’t set a government-mandated minimum score, but most lenders look for at least 620.
If your score is on the lower end, you’re not out of the running, but your loan options narrow and your costs rise. Paying down credit card balances and correcting errors on your credit report are the fastest ways to move the needle before you apply.
How Lenders Evaluate Your Income and Debt
Lenders calculate your debt-to-income ratio (DTI) to gauge whether you can comfortably afford a mortgage on top of everything else you owe. DTI is simple: add up all your monthly debt payments, including the projected mortgage, then divide by your gross monthly income. If you earn $6,000 a month and your total debts (car payment, student loans, credit cards, and projected housing costs) come to $2,400, your DTI is 40%.
For conventional loans, Fannie Mae caps DTI at 50% when the loan is run through its automated underwriting system. If a lender underwrites your application manually, the standard cap drops to 36%, though borrowers with higher credit scores and cash reserves can be approved up to 45%. FHA loans generally allow a DTI up to 43%, with some flexibility above that depending on the lender and your overall financial picture.
Lenders also verify that your income is stable. For salaried workers, that usually means at least two years of steady employment in the same field. You don’t have to stay at the same company, but gaps or frequent career changes can raise questions.
Qualifying When You’re Self-Employed
Self-employed borrowers face extra scrutiny because their income can fluctuate. Most lenders require at least two years of consistent self-employment in the same industry. You’ll need to provide two years of personal tax returns, two years of business tax returns (including schedules like K-1, 1120, or 1120S), a year-to-date profit and loss statement, and a current balance sheet.
Lenders average your net income over those two years, so a big deduction strategy that shrinks your taxable income can work against you when you apply for a mortgage. If you haven’t been self-employed for two full years, some lenders will accept a W-2 from a previous employer combined with your current business documentation. Having supporting paperwork ready, like a signed CPA statement, letters from current clients, a business license, or proof of business insurance, strengthens your case.
Down Payment Requirements
The down payment you need depends on the loan type. Conventional fixed-rate loans require at least 3% down on a single-family home. Adjustable-rate conventional mortgages start at 5%. FHA loans require 3.5% with a credit score of 580 or above, or 10% if your score falls between 500 and 579. VA loans and USDA loans (for eligible rural properties) can require zero down payment.
Putting down less than 20% on a conventional loan means you’ll pay private mortgage insurance (PMI), an extra monthly cost that protects the lender if you default. PMI typically runs between $30 and $70 per year for every $100,000 borrowed, depending on your credit score and down payment size. On a $300,000 loan, that could add $90 to $210 to your monthly payment. The good news: PMI drops off once you reach 20% equity in the home.
FHA loans carry their own version of mortgage insurance. You pay an upfront premium of 1.75% of the loan amount (usually rolled into the loan itself) plus an annual premium ranging from 0.15% to 0.75% of the loan amount, split into monthly installments. Unlike conventional PMI, FHA mortgage insurance often stays for the life of the loan unless you refinance into a conventional mortgage later.
Documents You’ll Need to Gather
Lenders verify everything you claim on your application. Having your paperwork organized before you apply speeds up the process significantly. Here’s what most lenders will ask for:
- Income proof: Your most recent pay stubs covering at least 30 days of earnings (if you’re paid weekly, gather four stubs). Year-to-date earnings should be visible on the stubs.
- Tax returns: A signed copy of your most recent federal tax return, all pages included. Self-employed borrowers typically need two years of returns.
- Bank statements: Two most recent months of statements for all checking and savings accounts, every page, even blank ones.
- Investment accounts: Two most recent months of brokerage or retirement account statements if you’re using those assets to qualify or for your down payment.
- Identity and residence: A current utility bill showing your name and address.
If someone else lives in the home and contributes to household expenses but isn’t on the loan, lenders may require a separate credit authorization form for that person. For borrowers with rental properties, homeowners association dues, or other housing-related obligations, expect to provide documentation for those as well.
Getting Preapproved Before You Shop
Preapproval is when a lender reviews your finances and tells you, in writing, how much they’re willing to lend you. It’s not a guarantee of final approval, but it carries real weight. Sellers take preapproved offers more seriously, and you’ll know your price range before you start touring homes.
To get preapproved, you submit the same documents listed above and authorize the lender to pull your credit. The lender checks your score, verifies your income and assets, and calculates your DTI. The process typically takes a few days. Preapproval letters are usually valid for 60 to 90 days, after which you may need to update your financial information.
Shopping multiple lenders within a short window (generally 14 to 45 days, depending on the scoring model) counts as a single credit inquiry, so comparing rates won’t tank your score. Even a small difference in interest rate can save you thousands, making it worth the effort to get quotes from at least two or three lenders.
Steps to Strengthen Your Application
If you’re not quite ready to qualify today, a few targeted moves can change your position in a matter of months. Paying down revolving debt, especially credit cards, lowers both your DTI and boosts your credit score. Avoid opening new credit accounts or making large purchases on credit in the months leading up to your application, since new debt raises your DTI and new credit inquiries can temporarily lower your score.
Building your savings helps in two ways. A larger down payment reduces or eliminates mortgage insurance costs, and lenders like to see cash reserves after closing, typically two to six months of mortgage payments sitting in your accounts. If your down payment is coming from a gift, lenders will require a gift letter confirming the money doesn’t need to be repaid.
Keep your employment stable during the process. Switching jobs mid-application can delay or derail approval, especially if the new role is in a different industry, involves a pay structure change (salary to commission, for example), or comes with a probationary period.