The minimum credit score, down payment, and debt levels you need to qualify for each type of mortgage

05.05.2022 23:59

Qualifying for a mortgage varies by the type of loan you want, but generally requires a certain credit score, debt-to-income ratio, and down payment.

couple look at computer to check how to qualify for mortgage — To qualify for a mortgage, you have to meet basic eligibility requirements.
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Each type of mortgage has its own requirements for what credit score you need to qualify.
Government-backed mortgages typically have more lenient requirements than conventional mortgages.
A lender may understand if an aspect of your finances is a little weak if other parts are strong.

When you apply for a mortgage, you have to meet basic eligibility requirements for a lender to approve your application. There are several types of mortgages, and each one has its own rules about who gets the green light.

To determine your eligibility, lenders look at three main factors: your credit score, debt-to-income ratio (DTI), and down payment. There may be other factors to consider, too, depending on the kind of mortgage.

We're providing the general rules of thumb for mortgage requirements, but in some cases, the eligibility is up to the lender. For example, a lender may decide it requires a 640 credit score for a conforming loan instead of the usual 620. Or it may approve you with a lower credit score if you have a high down payment.

When shopping for lenders, ask a representative about its minimum requirements if you're unsure.

Conventional mortgages

A conventional mortgage simply means one that isn't backed by the US government. It's typically a little harder to get a conventional mortgage than a government-backed mortgage (which we'll cover later).

There are two types of conventional mortgages: conforming loans and non-conforming loans.

How to qualify for a conforming loan

A conforming loan meets the borrowing limits set by the Federal Housing Finance Agency (FHFA) and the credit requirements to be purchased by the government-sponsored enterprises Fannie Mae or Freddie Mac. Here are the requirements:

Credit score: 620
Debt-to-income ratio: 36% to 50%, depending on the lender and how strong other parts of your financial profile are.
Down payment: Some lenders require 5%, 10%, or more in the form of a down payment. But if your mortgage is backed by Freddie Mac or Fannie Mae, you may only need as little as 3% down.
Other requirements: For 2022, the borrowing limit for a conforming loan is $647,200 in most parts of the US. In areas with a higher cost of living, such as Alaska, Hawaii, Guam, and the US Virgin Islands, the limit has been bumped up to $970,800.

How to qualify for a non-conforming loan

A nonconforming loan doesn't meet the FHFA's borrowing limits and isn't eligible to be purchased by Fannie Mae or Freddie Mac. When most people talk about non-conforming loans, they're referring specifically to jumbo loans. A jumbo loan is a mortgage that is larger than the conforming loan limit.

Requirements for these mortgages tend to be stricter than with conforming loans, and the minimum standards are heavily determined by the lender. Here's roughly what you can expect, though:

Credit score: At least 680, though some lenders require a minimum of 700 or more.
Debt-to-income ratio: It's up to the lender, but probably between 36% and 45%.
Down payment: Many lenders require at least 10% or 20%, but some ask for less or more.
Other requirements: A jumbo mortgage is for people who need to borrow more than $647,200 in most parts of the US, or $970,800 in more expensive areas in 2022. The amount you can borrow will depend on how strong your financial profile is.

Government-backed mortgages

A government-backed mortgage is insured or guaranteed by a federal agency. If you fail to make your mortgage payments, the agency will compensate the lender. This makes government-backed mortgages a little easier to qualify for because they're less risky for lenders.

There are three main types of government-backed mortgages: FHA, VA, and USDA loans.

How to qualify for an FHA loan

Mortgages backed by the Federal Housing Administration help buyers who don't have the best credit scores or debt-to-income ratios, but still want to buy a home. Here's what you'll need for an FHA loan:

Credit score: 580, though you can go lower if you make a larger down payment.
Debt-to-income ratio: Up to 50%, but it can vary depending on your financial profile.
Down payment: 3.5%; or if your score is between 500 and 579, you can qualify with a 10% down payment.
Other requirements: The FHA restricts how much you can borrow, and your limit depends on where you live in the US and whether you're buying a single- or multi-family place. In 2022, the limit for single-family properties starts at $420,680 and goes up to $970,800 in high-cost areas. Your home must also meet certain property standards. You can use an FHA loan to buy a home with normal wear and tear, but not one with major structural or safety issues.

How to qualify for a VA loan

VA loans are backed by the Department of Veterans Affairs. They're only available to military families. Here are the requirements:

Credit score: The VA doesn't set a minimum score. Individual lenders typically require scores between 580 and 660.
Debt-to-income ratio: VA loan lenders typically look for a DTI below 41%.
Down payment: No down payment is necessary.
Other requirements: You must be an active-duty military member or a veteran who served for a certain amount of time. You'll also qualify if you're a spouse of someone who died in active duty or another military-related incident, or if your spouse is a prisoner of war or MIA. The home you're buying should meet safety standards and be used as your primary residence, but there are no strict borrowing limits set by the VA.

How to qualify for a USDA loan

USDA loans are mortgages backed by the Department of Agriculture. They're for low-to-moderate income borrowers buying homes in rural or suburban areas. You'll need the following to be eligible:

Credit score: 640
Debt-to-income ratio: 41%
Down payment: No down payment is necessary.
Other requirements: Your home must be in a rural or suburban part of the US. If you already know the address of the home you want to buy, enter the information into the USDA Property Eligibility Site to see if it qualifies for a USDA loan. You also must earn a low-to-moderate income, and the limit varies based on where you live. Your monthly mortgage payments should not exceed 29% of your monthly income. This number includes your loan principal, interest, insurance, taxes, and homeowner's association dues.

Knowing which mortgage types you qualify for can help you determine which one is the best fit. There may be some flexibility, though. For instance, a lender may approve you with a high DTI ratio if you have an excellent credit score and sizeable down payment. If you're set on a certain type of mortgage but don't think you qualify, call a lender to ask about your options.