While eligibility criteria can vary by lender and loan type, there are a few common requirements that mortgage lenders typically look for including:
The credit score you’ll need will depend on the type of mortgage you want. You should usually have a score of at least 620 for a conventional loan. But you might qualify with a lower credit score for other kinds of mortgages, such as those backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) or Department of Veterans Affairs (VA).
Also, keep in mind that the higher your credit score, the better your interest rate will be.
Lenders want to see that you can afford to repay your loan, so you’ll need to provide proof of both consistent income and employment, such as with tax returns, pay stubs or 1099 forms.
They’ll also consider any assets you have that you could draw on in case of financial emergencies, such as money market accounts, stock portfolios or other properties you own.
Debt-to-income (DTI) Ratio
Your DTI ratio is the amount you owe in monthly debt payments compared to your income. To qualify for a mortgage, your DTI ratio should typically be less than 43%, but no higher than 50%.
Lenders will also likely check to see that your housing expenses—including your mortgage, homeowners insurance and property taxes—won’t exceed 28% of your gross income each month.
How large your down payment should be will depend on the lender and the type of mortgage you want. For a conventional mortgage, you’ll generally need a down payment of at least 3% of the home’s purchase price—though keep in mind that to avoid private mortgage insurance (PMI), you’ll have to put at least 20% down. For an FHA loan, your down payment must be at least 3.5%, while USDA and VA loans don’t require a down payment.
Ultimately, the more money you put down, the lower the risk will be for the lender. Also note that a larger down payment will lower your loan-to-value (LTV) ratio, which is also appealing to lenders.