According to a 2022 Zillow study, 78% of buyers used a mortgage to finance their home purchase and 28% of mortgage buyers reported being denied financing at least once before ultimately getting approved. Qualifying for a mortgage can be challenging, which is why it’s crucial to do some upfront preparation to ensure a smooth closing process.
Prepare for a mortgage
To increase your odds of successfully qualifying for a mortgage, take some initial steps to get your financial house in order. Here are some helpful tips to prepare you for the mortgage qualification process.
1. Check your credit score
All home loans have a minimum credit score you need to meet in order to qualify. Take the time to check your credit score before starting the qualification process to avoid surprises. Checking your own credit won’t negatively impact your score.
If your score ends up being lower than you expected, there are many ways to improve it, including paying down credit card debt and increasing your credit limit. A credit counselor can also review your credit with you to help you find ways to improve your score. There are even non-profit credit services available in most areas. Avoid any services that charge a fee to “make bad credit go away,” or similar promises.
2. Review your credit report
In addition to checking your credit score, you should also review your entire credit report. You’re entitled to a free credit report every 12 months from each of the three major credit bureaus. You can access your credit report at annualcreditreport.com.
Pay close attention to any errors in your report, like missed payments that were actually paid on time or incorrect account information. Credit reporting errors are common and can be fixed by filing a request with each individual credit bureau. Since your credit report factors into your credit score, it’s critical to make sure it’s accurate before applying for a mortgage.
3. Calculate your debt-to-income ratio
Your lender will also calculate your debt-to-income ratio (DTI) as part of their mortgage qualification criteria, so it’s smart to know yours ahead of time. DTI ratio compares your total debts to your total income each month. This helps lenders evaluate how much money is available in your monthly budget to pay off your loan. To calculate your DTI, add up your minimum recurring monthly debt payments each month (including things like credit card minimum payments and auto loans). Then, divide your total monthly debt payments by your gross monthly income. Try our DTI Calculator for a fast and easy way to crunch your numbers.
4. Determine the amount you can afford to spend on a home
When you’re preparing to qualify for a mortgage, it’s the perfect time to take a holistic look at your finances and determine your budget. Tools like our Affordability Calculator are a good place to start. You’ll also want to prioritize saving for a down payment and learn more about overall saving strategies for other costs associated with buying a home.
Meet minimum mortgage requirements
Each mortgage has its own minimum qualifications. You may choose a conventional loan (the most common type of loan), FHA loan (popular with first-time home buyers), VA loan (available to military service members and veterans) or a USDA loan (designed for rural areas). There are also jumbo loans for home loans that exceed conforming loan limits and special loans for investment properties.
In the table below, you’ll find general loan program guidelines for each type of loan used to finance a primary residence. Individual lenders may have additional or varying criteria, so it can pay to shop around to find the criteria that work best for your situation.
| Conventional | FHA | VA | USDA | Jumbo | |
|---|---|---|---|---|---|
| Minimum credit score | 620-660 | 500-580 | 580-620 | 580-620 | 680-700 |
| Maximum DTI ratio | 50% | 55% | 70% | 55% | 43% |
| Minimum down payment | 3% | 3.5% | 0% | 0% | 10% |
| Employment history | 2 years | 2 years | 2 years | 12 months | 2 years |
| Income limit | None | None | None | Income limits based on location | None |
*Table is an estimation for informational purposes and does not reflect actual mortgage loan offerings. Mortgage qualification factors will vary by location, lender, loan type, credit history and more.
1. Steady income
When considering whether to qualify you for a certain loan amount, most lenders will look at your total household income to make sure you’re not borrowing more than you can afford. This includes base pay (either salary or hourly income), bonuses, overtime income, commissions, secondary employment income, self-employment income and more. However, there is no income limit required to qualify for a mortgage, unless you’re trying to qualify for a USDA loan. USDA loans are the only type of mortgage that set income limits based on the financed property’s location.
2. Consistent employment history
Lenders want to know that you have a steady income to make your monthly mortgage payments. You’ll need two years of employment history for most loan types. USDA loans only require a minimum of 12 months on the job, but lenders may still review the previous two years of employment history. VA loans also require borrowers to serve for a minimum number of days based on the type of military service. For all loan types, you’ll need to explain any gaps in your employment history.
3. A good credit score
The minimum credit score required to qualify for a mortgage varies by loan type and the individual lender. Generally speaking, the higher your credit score, the lower the interest rate you’ll receive and the better the loan terms. A good credit score for buying a house is 720 or higher, but borrowers with a score of 670 can usually still expect a decent rate.
4. A low debt-to-income ratio
Your monthly gross income is compared alongside your total monthly recurring debts to determine if you meet debt-to-income (DTI) requirements. Each loan type sets a different maximum allowed DTI ratio. Anything less than 36% is typically considered good, but you may qualify for a mortgage with a DTI as high as 50%. If your DTI is too high, try lowering your debts by paying down high-interest credit cards and decreasing the amount of balances you hold each month. Adding a co-signer with low debt can also help balance out your combined debt-to-income ratio.
5. Down payment savings
Depending on the loan program, you may be able to put down as little as 0% to 3% of the home’s purchase price. Just over half (58%) of mortgage buyers reported putting down less than 20% on the home they purchased — with the median mortgage buyer putting down 10-19% of the final purchase price. Most (63%) mortgage buyers save for a down payment over time.
Government-backed programs, including VA and USDA, offer no down payment options, whereas other loan types, like mortgages on second properties, have higher minimum requirements.
Gather required documentation
Once you’ve determined the loan type you’re pursuing, you’ll need to gather the required documents. Your lender or loan officer can be a helpful resource in navigating this to-do list.
1. Proof of income
You’ll be required to provide proof of steady and ongoing income. This usually includes two years of IRS W-2 forms and pay stubs from the last two months. Leave and Earnings Statements (LES) for military income and entitlements are valid proofs of income. Self-employed individuals require additional documentation, like profit and loss statements and tax returns.
2. Employment verification
Your lender will contact your employer directly to verify your employment, so you’ll need to provide a name and phone number. They may also ask for an employment verification letter along with copies of your most recent pay stubs.
3. Proof of assets
In order to show your ability to pay for your down payment and closing costs, your lender will ask for proof of assets. Assets can be liquid, non-liquid or a combination of both. Liquid assets include anything that can quickly be turned into cash like checking, savings and investment accounts. You can provide a bank statement to show proof of liquid assets.
For gifted funds, you may need to provide a gift letter that proves the money isn’t a loan you need to repay, along with a proof of transfer of the funds into your bank account from the individual making the gift.
Non-liquid assets need to be liquidated in order to be used toward a down payment and closing costs. Examples of non-liquid assets include real estate holdings, vehicles, a 401k account or art — these are valuables you own and can sell to receive fair-market compensation for. Lenders will usually require a bill of sale and other documents to show you received compensation. While you can liquidate during the underwriting process, the qualification process is much easier if you liquidate before applying for a mortgage.
4. Personal identification
To ensure you are who you say you are, you’ll be required to provide government-issued identification, like a driver’s license or a passport. If you don’t have these forms of ID, you can also use a social security card with another form of ID to verify your name and birthdate.
Work with a lender
You want a lender who best fits your financial needs, like one who offers low interest rates, monthly payments that fit within your budget and loan options that benefit you as a buyer. You should also consider your comfort level and the amount of support each lender offers. If you’re a first-time home buyer, for example, you may benefit from a lender who walks you through the mortgage process step-by-step. Here are some of the ways you’ll work with lenders.
1. Get pre-qualified or pre-approved
A pre-qualification or pre-approval is a helpful way to begin the mortgage process. You can get pre-qualified as soon as you begin your home search and then get pre-approved once you’re ready to make offers. Pre-approvals allow you to compare rates, loan options and lender costs before committing to a single lender or loan program. If you’re just starting to explore the idea of taking out a mortgage, a pre-qualification is the faster and easier way to see how much you’re likely to be able to borrow.
2. Apply for a mortgage
You’ll need to complete a loan application to formally kick off the qualification process. This can usually be done online, and your lender can help walk you through how to complete it correctly. You can apply for a mortgage with multiple lenders to compare loan options before choosing a lender to work with.
3. Finalize your loan application
To secure a mortgage, you’ll need to finalize your loan application paperwork with your chosen lender. In order to do this, you’ll need a purchase contract and the property’s address. In other words, you’ll complete this step after you have found a home and are in contract with a seller.
FAQs about mortgage qualification
You may have additional questions related to how to qualify for a mortgage. We've answered a few of the most common questions about mortgage qualification below.
Can I qualify for a mortgage?
As long as you meet the minimum mortgage requirements for your desired loan program and lender, you can qualify for a mortgage. Requirements can include income limits, proof of employment history, minimum credit score, maximum debt-to-income ratio and down payment minimums.
What do I need to qualify for a home loan?
The specific qualifications vary by loan program and lender, but generally you’ll need good credit, a low debt-to-income ratio, money for a down payment and a steady work history.
How much income do I need to qualify for a mortgage?
A lot of factors go into affordability, so it can be helpful to use an affordability calculator to see how your down payment, debts and income can impact the home you can afford to buy. The table below is an example of a 30-year fixed-rate, conventional mortgage with a 5% interest rate and a 3% down payment. The amount you may qualify for assumes a DTI of no more than 43%, a property tax rate of 1.2%, annual home insurance costs of $800, monthly PMI costs and monthly debts totaling $951 (the average monthly debt payments Americans pay for personal loans and credit cards).
| Annual income | $50,000 | $73,000 | $96,000 | $120,000 |
| Mortgage you may qualify for | Up to $110,000 | Up to $220,000 | Up to $340,000 | Up to $460,000 |
| Down payment amount | $6,000 | $9,000 | $12,000 | $15,000 |
How do I know if I qualify for a mortgage?
If you’re not sure if you’ll qualify for a mortgage, it can be helpful to do a pre-qualification with a lender. Pre-qualifying has no obligation and typically doesn’t affect your credit score. It can be a helpful way to get a rough idea of how much you’d be allowed to borrow. Not quite ready to contact a lender? Estimate your rough monthly mortgage expenses with our free Mortgage Calculator.
