Securing home loan financing isn’t hard if you have your financial ducks lined up in a row. Lenders want to ensure you are creditworthy, securely employed, and have sufficient funds. But you may still be wondering: How do I qualify for a home loan? What are the specific loan qualification requirements? For that matter, can anyone get a mortgage loan?
This article will explain how to qualify for a mortgage, including what you’ll need when it comes to credit score, down payment, debt-to-income ratio, and other eligibility for a mortgage criteria, and provide helpful recommendations on deciding among different mortgage types and lenders.
...in as little as 3 minutes – no credit impact
Major qualification factors for a mortgage
When shopping for loans, every prospective buyer asks themselves the same question: What do I need to qualify for a mortgage? Let’s take a closer look at the different factors mortgage lenders will examine.
Credit score
Your credit score is among the most important mortgage loan qualifications. It's is a three-digit number that indicates the health of your credit. This score ranges between 300 to 850 in popular scoring models such as FICO and VantageScore. A score of 300 to 579 is considered poor, 580 to 669 is fair, 670 to 739 is good, 740 to 799 is very good, and 800 to 850 is classified as excellent. Lenders rely on your credit score and credit history to gauge how likely you are to repay a loan. These factors heavily influence the interest rate you’ll be offered. Typically, the higher your credit score, the lower your interest rate, and vice versa.
Down payment
A down payment is the upfront cash you may be required to pledge toward the purchase price of a home. It typically spans between 3% and 20%, depending on the loan program. This payment reduces the amount you need to finance through a mortgage, with the remaining balance covered by the lender. If your down payment is below 20%, you’ll likely be required to pay for private mortgage insurance (PMI), depending on your chosen loan program. The size of your down payment not only impacts your loan amount and monthly payments but can also affect your eligibility for certain loan programs and financial assistance options designed to make homeownership more accessible.
Debt-to-income ratio
Your debt-to-income (DTI) ratio reflects the amount of your gross monthly income that goes toward paying debts, indicating how much of your earnings are already committed and how much remains for other expenses. Expressed as a percentage, your DTI ratio reveals the balance between your income and financial obligations. For example, if half of your paycheck covers debt payments, your DTI would be 50%. To calculate your DTI, simply add up all your monthly debt payments, divide that total by your gross (before-tax) monthly income, and multiply the result by 100 to convert it into a percentage.
Income
Lenders also want to check that your earnings will be sufficient to afford your monthly mortgage payments and not leave you stretched too thin or unable to pay your other bills, including credit card payments and other debts. They’ll also look closely at your employment history to better gauge your job security and the likelihood that you’ll remain employed over the life of the loan.
Collateral
Collateral is an asset that a lender accepts as security for a loan. With a traditional mortgage loan, the home itself serves as the collateral. That means if you fail to make loan payments, your lender has the option to repossess or claim ownership of your home. Your lender will evaluate the condition, worth, and marketability of the property you want to purchase to make sure its value is at least equivalent to the loan amount. This safeguards them from financial risk in the event you default on your loan.
Tips to qualify for a mortgage
Now that you know the qualifications for getting a mortgage, here are several helpful ways to improve your odds of getting the green light from a lender.
Improve your credit score
Raising your three-digit score even a few points can have a major impact when it comes to loan qualification.
“Start by checking your three free credit reports and disputing any errors you spot. This sounds basic, but I’ve seen it make a big difference quickly,” says Zev Freidus, president of ZFC Real Estate.
Other proven ways to raise your credit score include:
— Pay down your credit card balances below 30% of their limit.
— Pay your bills on time and never miss a payment.
— Avoid applying for any new loans or opening any new lines of credit before applying for a mortgage.
— Refrain from closing any existing credit accounts or loans.
Reduce debt
Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College, strongly advises decreasing what you owe elsewhere before applying for a mortgage.
“Focus on paying down debts with the highest interest rate. Work with creditors to negotiate a reduced amount if possible, and consider debt consolidation options like a personal loan if it charges a lower interest rate than what you are currently paying,” he says.
Additionally, avoid financing large purchases like a new car – a surefire way to worsen your DTI ratio, according to Anthony Sharp, a Realtor with Sharp Realty Group.
Save for the down payment
Salt away as much as you can toward the biggest lump sum expense you’ll be making in the transaction: your down payment. Remember that the more money you put down, the less you’ll need to borrow, which means paying less overall over your loan’s term.
“I recommend automating 15% of your paycheck to automatically go toward a down payment savings fund,” suggests personal finance expert Andrew Lokenauth. “Also, consider getting a side gig or extra job to help grow these funds. Cut discretionary expenses like subscription services and dining out, too. And do whatever it takes, including moving in temporarily with roommates or mom and dad to save even more.”
Also, explore local down payment assistance programs you may be eligible for, which can provide grants and/or forgivable loans if you qualify.
...in as little as 3 minutes – no credit impact
Choosing the right mortgage
It’s also crucial to select the ideal mortgage program you qualify for that works best for you. Here’s a breakdown of the four major loan types and their qualifications for getting a mortgage:
| Loan Type | Minimum Credit Score | Minimum Down Payment | Maximum DTI Ratio | Mortgage Insurance/Fee Required |
|---|---|---|---|---|
| Conventional | Often 620+ | 3%–5% | Around 43% (can vary) | Mortgage insurance needed if down payment is <20% |
| FHA | 500–579 (with 10% down) 580+ (with 3.5% down) |
3.5% (with 580+ score) 10% (with 500–579 score) |
43% (can be higher with compensating factors) | Mortgage insurance required for life of loan unless refinanced |
| VA | No official minimum (lenders often prefer 620+) | 0% | 41% (flexible with strong compensating factors) | No mortgage insurance; one-time VA funding fee (varies) |
| USDA | Typically 640+ | 0% | 41% (may allow higher with strong factors) | No mortgage insurance; upfront guarantee fee and annual fee required |
Conventional loans
Conventional mortgage loans that meet Fannie Mae and Freddie Mac guidelines can be had for as little as 3% down, although making a minimum 20% down payment avoids having to pay for PMI.
“You’ll need a credit score of at least 620, but 740 or higher scores will get you better rates and lower fees,” says Sharp. “Your DTI ratio is generally capped at 43%, although some conventional loans may allow slightly higher DTI ratios if you have stronger credit.”
FHA loans
A government-backed FHA loan requires as little as 3.5% down if you have at least a 580 credit score, or a 10% down minimum with as little as a 500 credit score.
“FHA loans are perfect for first-time buyers with lower credit scores or small down payments. Just remember that you’ll have to pay mortgage insurance premiums for the life of your loan unless you refinance to a conventional loan after you’ve accrued enough equity,” Lokenauth continues.
With an FHA loan, your DTI ratio can be as high as 50% with compensating factors. But your chosen property must meet U.S. Department of Housing and Urban Development (HUD) quality and safety standards.
USDA loans
An even more generous loan option is a USDA home loan, which has no down payment requirement, although you must choose a property in a designated rural or suburban area.
“Your DTI ratio should be 41% or less, in most cases, and a credit score of at least 640 is ideal for streamlined loan processing,” Freidus points out.
Income limits also apply: You cannot exceed 115% of the median income for your chosen area. USDA loans don’t require traditional mortgage insurance, but they do include an upfront guarantee fee and an annual fee – similar to mortgage insurance – that help protect the lender and are added to the borrower’s mortgage costs.
VA loans
Probably the best loan deal available is a VA home loan, although you must be a veteran, active duty service member, or surviving spouse to qualify. Like USDA loans, a VA mortgage has no down payment requirement and you won’t have to pay mortgage insurance. Plus, interest rates are often lower than what other loans charge.
However, many lenders require a credit score of at least 620 and a DTI ratio of no higher than 41%. Also, most borrowers have to pay a one-time funding fee, based on factors like down payment and service history, to help cover program costs, though some veterans may qualify for an exemption.
Choosing the right lender
Picking the right lender is just as important as choosing the right loan. You want to shop around among several different lenders and compare interest rates, terms, closing costs, and loan offers carefully to find the best deal possible.
“Read reviews on every lender you research. Ask them how long they take to close, and find out what level of customer service you can expect,” advises Sharp. “Some lenders excel with government-backed loans like VA or USDA, while others specialize in first-time homebuyer programs. Look for a lender that is upfront and responsive and explains things clearly. A good lender will guide you, not pressure you.”
Lokenauth agrees, adding that it’s important to get everything in writing.
“Local mortgage brokers often find better deals than big banks,” he adds.
During your search, check out Better – a trusted mortgage lender that offers great mortgage rates and a convenient digital, straightforward application process.
Conclusion
When determining qualifications for getting a mortgage, lenders will consider several key criteria, including your down payment amount, credit score, DTI ratio, earnings, and the value of the home you intend to purchase. Take the time to better understand how these factors impact your loan eligibility and costs when comparing your options, calculate how much you can likely afford to borrow, and consider getting preapproved for a mortgage . Although conventional loans often require a minimum credit score of 620 and as little as 3% down, government-backed programs like FHA, VA, and USDA loans provide more flexible terms, including lower credit score thresholds, minimal or no down payments, and varying insurance or funding fee requirements. Remember that enhancing your credit score, saving as much as you can for a down payment, and decreasing your debt can bolster your odds of securing a loan.
“Lastly, while it’s important to focus on what you need to qualify, don’t forget to ask yourself if the loan fits your long-term goals,” Freidus notes. “A good mortgage is one that not only gets you in the door but lets you stay comfortably once you’re there.”
...in as little as 3 minutes – no credit impact