To qualify for a mortgage, you generally need a credit score of at least 620, a debt-to-income ratio below 50%, a down payment of at least 3%, and stable income with documentation to prove it. Those are the broad strokes, but the specific thresholds shift depending on the type of loan you’re applying for, how much you’re borrowing, and how strong the rest of your financial profile looks. Here’s what lenders evaluate and what you can do to meet their requirements.
Credit Score Thresholds by Loan Type
Your credit score is the first gate most lenders check. For a conventional mortgage (one not backed by a government agency), the minimum credit score is typically around 620. Government-backed loans often have lower floors: FHA loans allow scores as low as 580 with a 3.5% down payment, and borrowers with scores between 500 and 579 can still qualify if they put 10% down. VA loans, available to eligible military members, don’t set an official minimum, but most lenders impose their own cutoff around 620. USDA loans, designed for rural and suburban buyers, generally require a 640.
Meeting the minimum doesn’t guarantee approval or favorable terms. Borrowers with scores above 740 typically unlock the lowest interest rates, which can save tens of thousands of dollars over a 30-year loan. If your score is on the lower end, you’ll likely face higher rates, stricter requirements on other parts of your application, or both. Pulling your credit reports from all three bureaus before you apply gives you time to dispute errors and pay down balances that might be dragging your score down.
How Debt-to-Income Ratio Works
Your debt-to-income ratio, or DTI, measures how much of your gross monthly income goes toward debt payments. Lenders use it to judge whether you can comfortably take on a mortgage payment alongside your existing obligations. To calculate yours, add up all your minimum monthly debt payments (car loans, student loans, credit card minimums, personal loans, and the proposed mortgage payment including taxes and insurance), then divide by your gross monthly income before taxes.
Fannie Mae, which sets the rules for most conventional loans, caps DTI at 50% for loans run through its automated underwriting system. If your application is reviewed manually, the standard cap drops to 36%, though it can stretch to 45% if you have a strong credit score and cash reserves. FHA loans allow DTI ratios up to 43% in most cases, sometimes higher with compensating factors like significant savings or a larger down payment.
In practice, a lower DTI makes your application stronger even if you’re technically under the limit. A ratio below 36% signals to lenders that you have breathing room in your budget. If your DTI is too high, the fastest fixes are paying off a smaller debt entirely or increasing your income. Even eliminating a $300 monthly car payment can meaningfully shift the math.
Down Payment Requirements
The old rule that you need 20% down to buy a home hasn’t been true for a long time. Conventional loans allow down payments as low as 3% for qualified borrowers. FHA loans require 3.5% with a credit score of 580 or above. VA and USDA loans offer zero-down options for eligible borrowers, meaning you can finance the entire purchase price.
Putting down less than 20% on a conventional loan means you’ll pay private mortgage insurance, commonly called PMI. This is a monthly charge that protects the lender if you default, and it typically costs between 0.5% and 1% of the loan amount per year. On a $300,000 loan, that’s roughly $125 to $250 per month. PMI drops off automatically once you reach 20% equity in the home. FHA loans carry a similar cost called a mortgage insurance premium, or MIP, which stays on the loan for its entire life unless you refinance into a conventional loan later.
Your down payment can come from savings, gifts from family members, down payment assistance programs, or the sale of another asset. Lenders will want to see a paper trail for the funds, so large deposits that appear in your bank account shortly before closing will trigger questions. Keep records of any transfers or gifts.
Income and Employment Verification
Lenders need to confirm that your income is stable enough to support the mortgage. For salaried employees, this typically means providing your two most recent pay stubs, W-2 forms from the past two years, and sometimes federal tax returns. Self-employed borrowers face more scrutiny: expect to provide two years of personal and business tax returns, a year-to-date profit and loss statement, and possibly business bank statements.
Gaps in employment can raise red flags. If you recently changed jobs, lenders generally want to see that you stayed in the same field or moved to a higher-paying role. A career change with a pay cut right before applying can complicate things. Most lenders prefer at least two years of consistent employment history, though there’s flexibility if your overall financial profile is strong.
Commission, bonus, and overtime income count, but lenders typically average it over the past two years rather than using your highest recent paycheck. If your variable income has been declining, a lender may use the lower figure or exclude it entirely.
How Much You Can Borrow
The amount you can borrow depends on your income, debts, down payment, and the type of loan. Conforming loans, which are bought by Fannie Mae and Freddie Mac, have a maximum loan size set each year by the Federal Housing Finance Agency. In most of the country, this limit applies to single-family homes. High-cost areas have a higher ceiling. Loans that exceed the conforming limit are called jumbo loans, which typically require higher credit scores (often 700 or above), larger down payments (10% to 20%), and more cash reserves.
Getting preapproved before you start house hunting gives you a concrete number to work with. During preapproval, a lender reviews your credit, income, and assets, then tells you the maximum loan amount you qualify for. This letter also signals to sellers that you’re a serious buyer. Preapproval is not the same as prequalification, which is a rougher estimate based on self-reported information. Preapproval carries more weight because the lender has actually verified your finances.
Assets and Cash Reserves
Beyond the down payment, lenders want to see that you have enough cash left over after closing to handle unexpected expenses. These cash reserves are measured in months of mortgage payments. Conventional loans may require two to six months of reserves depending on the loan size, property type, and your credit profile. Jumbo loans often require 12 months or more.
Reserves can include checking and savings accounts, retirement account balances (though lenders typically count only 60% to 70% of retirement funds since early withdrawal triggers taxes and penalties), and investment accounts. Lenders will review your bank statements from the past two to three months, so avoid large unexplained withdrawals or deposits during that window.
Documents You’ll Need to Apply
- Identification: Government-issued photo ID and Social Security number
- Income proof: Pay stubs (most recent 30 days), W-2s or 1099s (past two years), federal tax returns (past two years)
- Asset statements: Bank statements, investment account statements, and retirement account statements (past two to three months)
- Debt documentation: Recent statements for all outstanding loans and credit cards
- Employment verification: Contact information for your employer; self-employed borrowers need business tax returns and a profit and loss statement
- Housing history: Addresses for the past two years, and if renting, landlord contact information or proof of payment
Having these documents organized before you apply speeds up the process significantly. Most lenders can issue a preapproval within a few business days once they have everything, and the full underwriting process from application to closing typically takes 30 to 45 days.
Steps to Strengthen Your Application
If you’re not quite ready to qualify, small moves can make a big difference. Paying down credit card balances improves both your credit score and your DTI ratio at the same time. Avoid opening new credit accounts or making large purchases on credit in the months leading up to your application, since new inquiries and higher balances can temporarily lower your score.
If your down payment is thin, look into down payment assistance programs. Many state and local housing agencies offer grants or low-interest second loans to first-time buyers, and some programs are available to repeat buyers as well. Eligibility often depends on income limits and the price of the home you’re purchasing.
Finally, shop more than one lender. Interest rates, fees, and qualification criteria vary from lender to lender, and getting quotes from at least three gives you leverage to negotiate. Multiple mortgage credit inquiries within a 14- to 45-day window (depending on the scoring model) count as a single inquiry on your credit report, so rate shopping won’t hurt your score.