Your credit score is just one element that goes into a lender’s approval of your mortgage. Here are some other personal factors that lenders consider when qualifying you for a mortgage.
1. Debt-To-Income Ratio (DTI)
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying off debt. Having less debt in relation to your income makes you less risky to lenders, which means you’re able to safely borrow more on your mortgage.
To find your DTI, divide the amount of recurring debt (including credit cards, student loans and car payments) you have by your monthly income. Here’s an example:
If your debt is $1,000 per month and your monthly income is $3,000, your DTI is $1,000 / $3,000 = 0.33, or 33%.
It’s advantageous to have a DTI of 50% or lower. The lower your DTI, the better chance you have at being offered a lower interest rate.
2. Loan-To-Value Ratio (LTV)
The loan-to-value ratio (LTV) is another factor used to determine how you qualify for a home loan. Your LTV is the loan amount divided by the home’s purchase price.
Here’s an example. Let’s say you buy a home for $150,000, put $30,000 down and take out a mortgage loan for $120,000. Your LTV would be 80%. As you pay off more of your loan, your LTV decreases. A higher LTV is riskier for your lender because it means your loan covers a majority of the home’s cost.
LTV decreases when your down payment increases. Considering the example above, if you take out a $110,000 loan and put $40,000 down ($10,000 more than before), your LTV is now 0.73, or 73%.
Different lenders accept different LTV ranges, but it’s best if your ratio is 80% or lower. If your LTV is greater than 80%, you may be required to pay a form of mortgage insurance. Keep in mind that this varies by loan type. Some loans, like VA loans, may allow you to finance the full purchase price of the house without having to pay mortgage insurance.
3. Income And Assets
Your lender wants to be sure that you maintain a steady income and consistent employment. Lenders often ask borrowers for documents that validate their income, assets and work history. These documents may include recent bank statements, pay stubs and W-2s. The steadiness of your income could affect the interest rate you’re offered.
FAQs
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
What is the minimum credit score to buy a house? ›
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
What credit score is needed to buy a $400,000 house? ›
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores.
What credit score do you need for a 300K house? ›
The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
Is a 720 credit score good enough to buy a house? ›
Home loans
Assuming you have enough income, a 720 credit score is likely high enough to help you get a government-backed mortgage such as an FHA for VA loan. However, it's probably not high enough to get the lowest interest rates available.
How much can I borrow with a 580 credit score? ›
You can borrow anywhere from a few thousand dollars to $100,000+ with a 580 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
What credit score is needed for a $250000 house? ›
Conventional loan | Credit score: 620
To qualify for a conventional loan, you'll need a credit score of at least 620, though some lenders may choose to approve conventional mortgage applications only for borrowers with credit scores of 680 and up.
How much income do you need to buy a $250,000 house? ›
If you follow the 2.5 times your income rule, you divide the cost of the home by 2.5 to determine how much money you need to earn annually to afford it. Based on this rule, you would need to earn $100,000 per year to comfortably purchase a $250,000 home.
How much do you need to make to afford a $300K house? ›
To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, type of home loan, loan term, and mortgage rate.
How much house can I afford if I make $70,000 a year? ›
One rule of thumb is that the cost of your home should not exceed three times your income. On a salary of $70k, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don't have a lot of other debts.
The median downpayment on a home is 13%, but if a buyer wants to avoid fees, including private mortgage insurance, they may have to put at least 20% down. If a buyer puts 20% down and takes out a $350K mortgage, they're likely putting down around $87,500.
What is the 20% down payment on a $300 000 house? ›
A 20% down payment on a $300,000 mortgage is $60,000. The $60,000 down payment is what most lenders look for especially commercial lenders, because it helps mitigate the risk of default.
How much is a downpayment on a 200k house? ›
Conventional mortgages, like the traditional 30-year fixed rate mortgage, usually require at least a 5% down payment. If you're buying a home for $200,000, in this case, you'll need $10,000 to secure a home loan.
Can you buy a house with a 600 credit score? ›
Yes, you can buy a house with a 600 credit score — but it would be less challenging if your score were higher. A 600 score will not be high enough to qualify for a conventional home loan, so look into FHA loans, which have lower requirements: 500 with a 10 percent down payment, and 580 with a 3.5 percent down payment.
Can I purchase a home with a 580 credit score? ›
The Federal Housing Administration (FHA) insures FHA loans, which allows mortgage lenders to accept a credit score as low as 580 with a 3.5 percent down payment, or 500 with a 10 percent down payment.
Is a 580 credit score good enough to buy a house? ›
Conventional loans are the most common type of mortgage, accounting for about 70% of the market. They usually require a 620 credit score, though some lenders will consider applicants with scores as low as 580.
How much loan can I get with a 650 credit score? ›
You can borrow as much as $40,000 - $100,000+ with a 650 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
