How Do You Qualify For a Mortgage?

Mortgage Qualification Requirements

Tips on Qualifying for a Mortgage

Find the Best Mortgage Loan for Your Situation


Browsing homes online can be enticing, but homeownership typically involves bringing a lender into the home-buying process. Most buyers need a mortgage lender to finance the home of their dreams. As exciting as the home-buying journey can be, it’s vital to understand how to qualify for a mortgage. With the backing of a lender’s pre-qualification form, you can confidently walk into negotiations with a seller and follow through on the home purchase.

What Does It Mean to Qualify for a Mortgage?

Qualifying for a mortgage signifies your ability to meet the financial responsibilities of a home loan. To determine whether you can repay the mortgage, lenders review various aspects of your financial health, including income, debt, credit score, and assets. Additionally, they assess the value of the desired home through an appraisal to ensure it aligns with the purchase price and loan amount.

Since most home purchases require lender financing, qualifying for a mortgage is an essential step in the journey.

How Do You Qualify for a Mortgage?

If you want to buy a home, one of the first steps is choosing a lender and getting a mortgage pre-approval. The application process involves submitting detailed financial information, including income, assets, and employment verification. The lender also assesses your credit report to ensure your credit score meets the minimum requirements, typically around 620 for conventional mortgages. Upon meeting pre-approval criteria, you receive a letter, called a pre-qualification form, from the lender specifying the approved loan amount for your home purchase.

After pre-approval, you can confidently search for a home, knowing you have financial backing. Once you find your ideal home and the new property is under contract, an appraisal is conducted to determine its value. This step is critical because lenders only provide a mortgage within the home’s appraised value. If there’s a disparity between the appraisal and the seller’s asking price, negotiations or searching for another home within your preapproved range becomes necessary.

The appraisal phase sets the maximum mortgage amount you can obtain for a specific property. While this figure doesn’t necessarily represent the highest loan your lender can provide, it creates a ceiling for your borrowing capacity. If you find a home that exceeds this limit, you may need to explore other properties within your preapproved range.

Mortgage Qualification Requirements

Passing mortgage qualification requirements is vital to purchasing a home. Remember, different types of home loans and other lenders can have varying conditions, such as credit score and income thresholds.


Borrowers who can demonstrate reliable income are more likely to receive mortgage approval. Without pay stubs, invoices, tax returns, or other proof of income, your lender can’t confirm your ability to repay the mortgage. The following types of income will help you qualify:

  • Job income
  • Overtime income
  • Investment income
  • Retirement income
  • Social Security income
  • Commissions
  • Military benefits
  • Income from a second job or side business
  • Alimony and child support

Remember, lenders want to see an income stable enough to handle a mortgage. Irregular deposits of varying amounts may not be sufficient to qualify for a mortgage. In addition, income that will end soon, such as payments from an investment account with a few thousand dollars left, won’t count as qualifying income.


Assets help assure your lender that an emergency or an unexpected change in circumstances won’t stop you from paying your mortgage. For example, a healthy savings account means losing your job won’t prevent you from affording your house payment. The following assets may be used to help qualify:

  • Cash in your bank accounts, including checking and savings
  • Individual retirement accounts (IRAs), 401(k)s and other retirement accounts
  • Stocks, bonds, and mutual funds
  • Investment portfolios
  • Property, including real estate

Your lender will ask to see relevant documentation demonstrating your assets’ worth. You’ll submit account statements from your bank or financial institution showing the cushion your assets provide.

Debt-To-Income Ratio

Your debt-to-income (DTI) ratio reveals how much of your monthly income is allocated to debt payments. This figure tells mortgage lenders if you can take on another debt obligation like a mortgage. If your monthly debts consume too much of your gross income, you won’t be able to afford a mortgage payment.

You can calculate your DTI by dividing your total monthly debt by your gross monthly income. Regular expenses such as rent, credit cards, and loans count. However, utilities and insurance premiums usually don’t.

For example, say you have $6,000 of gross monthly income. You have an auto loan that costs $500 per month, student loans with a $175 monthly payment, and you pay $1,600 in rent. So, your debt is $2,275 in total. Therefore, your DTI is 2,275/6,000 = 37.92%.

Lenders typically like to see a DTI of less than 50%. Therefore, your DTI would help you qualify for a mortgage in the above example.

Credit Score

Your credit score indicates your reliability as a borrower. You earn an excellent credit score by paying bills on time, keeping debt to a minimum, and successfully handling different types of debt. On the other hand, a low credit score may indicate that you miss payments, have high debt, or need more experience handling different types of credit.

Maintaining a high credit score helps you qualify for a loan. Specifically, 620 is the minimum FICO® score requirement for a conventional mortgage. FHA and VA loans have less stringent standards, allowing borrowers with scores down to 580 to qualify. If you’re a credit-challenged borrower, a down payment of 10% or more of the home value can help you bypass the credit requirements to secure a mortgage.

A higher credit score can also secure more favorable interest rates, potentially reducing your overall mortgage costs. As a result, your credit can lower your mortgage payment by decreasing the interest you pay on the principal. Even a fraction of a percentage point can equal hundreds or thousands in annual or total costs.

If you’re concerned about your credit score or income, making a sizable down payment, reducing your DTI ratio, and improving your credit score over time are proactive steps to enhance your mortgage qualification prospects. Exploring different mortgage loan options can also help you find the best fit for your unique financial situation.

Can I Qualify for a Mortgage?

Whether or not a borrower can qualify for a mortgage depends on how their circumstances fulfill a lender’s requirements. Communicating with lenders about their standards can help you organize your finances and make strides toward qualifying. Specific actions can help you qualify, such as increasing your income, paying off or consolidating debt, and strengthening your credit score.

Tips on Qualifying for a Mortgage

Qualifying for a mortgage means showing you can uphold the financial responsibilities of a mortgage. The options below can give you an edge when applying with a lender.

Make a Sizable Down Payment

A down payment is often a requirement for buying a home. Typical minimum down payments range from 3% to 5% of the purchase price of a home. For example, a $300,000 purchase with a 5% down payment would mean contributing $15,000 at closing.

However, a down payment of 10% or more can help you qualify for a mortgage because it allows the bank to take less risk and provides you savings through lower monthly mortgage insurance and loan payments. Using the above example, a 10% down payment would be $30,000, meaning you’ll have 10% equity immediately. Doing so leaves you with $270,000 left to borrow. You’ll avoid paying mortgage insurance if you can put down 20%.

This technique can benefit you with a low credit score since lenders may allow lower scores from borrowers who can make a hefty down payment.

Lower Your DTI Ratio

If your DTI is too high for lenders to approve you for a loan, you can lower it through the following methods:

  • Pay off or consolidating your debt. Credit cards, personal loans, and other debts hinder your monthly financial capacity and can weaken your credit. Eliminating or consolidating outstanding debts will lower your DTI and allow you to use more of your income.
  • Increase your income. Whether you ask for a raise, get a second job, or change careers, more monthly income means a lower DTI.
  • Don’t acquire new debts. Keeping your financial situation stable is key when you’re trying to qualify for a mortgage. Another debt will further unbalance your DTI, sabotaging your efforts.

Improve Your Credit Score

Unfortunately, a low credit score can offset a robust income. Therefore, it’s beneficial to take several months to increase your credit score before trying to qualify for a loan. The following steps can help boost your score:

  • Make on-time debt payments for at least the minimum amount due.
  • Pay down debts to bring down your utilization rate (debt balance to credit limit ratio), which you want below 30%.
  • Wait it out. Part of your credit score is history. The longer you have your credit card or loan, the higher your score can grow.
  • Use a tool to boost your score. If you need a mix of credit, score-boosting tools from reliable companies will factor monthly bills like phone, cable, and utilities into your score. Starwest also offers tools and assistance for boosting your credit score, so call us today to see how we can help.

Remember, it can take time to improve your credit score sufficiently to qualify for a mortgage. However, the effort is worth it: Not only does it allow you to access mortgage products, but a good credit score also provides more loan options and helps you receive better loan terms.

Find the Best Mortgage Loan for Your Situation

Home-buying can be exhilarating, and jumping on the first mortgage offer you receive is tempting. However, exploring your loan options will help you find the best one. While conventional loans are popular, government-backed loans can provide additional benefits for borrowers. Plus, shopping around can mean finding a mortgage lender offering a better interest rate, lower monthly payment, and significantly less closing costs.

  1. Conventional Loan: A conventional loan is a mortgage without the federal government’s financial backing and is one of the most popular loans. They require a minimum credit score of 620 and a minimum down payment of 3%. In addition, nonconforming conventional loans can help buyers afford more expensive homes.
  2. FHA Loan: The Federal Housing Administration (FHA) funds FHA loans for buyers with income and credit scores that don’t meet the minimum requirements for conventional loans. The government backs these loans, and, as a result, FHA loans are ideal for borrowers who are first-time home buyers or have lower credit scores. However, borrowers must pay mortgage insurance premiums (MIP) and monthly mortgage insurance payments, regardless of their down payment amount, increasing their monthly payments.
  3. VA Loan: Active military members, veterans, and eligible spouses can access VA loans, which provide excellent terms for borrowers. For example, a home buyer using a VA loan has no mandatory down payment requirement. In addition, credit requirements can be more flexible, interest rates can be lower, and the VA may provide financial advantages for veterans with disabilities.
  4. USDA Loan: USDA loans come from the U.S. Department of Agriculture (USDA) and are for borrowers in designated rural locations. Eligibility depends on where you’re buying a home, so that urban areas won’t qualify for this loan type. Likewise, USDA loans are specifically for households making less than 115% of the median household income in the area. In addition, borrowers don’t have to make any down payment to qualify. You can also roll closing costs into your loan. Therefore, if you struggle with income or credit and live in an eligible region, a USDA loan can be an affordable way to purchase a home.

The Bottom Line on Qualifying for a Mortgage

Qualifying for a mortgage involves providing mandatory information on your finances to prove your capability to handle a mortgage. Lenders consider income, DTI, credit, and assets to determine eligibility. If you don’t qualify for a mortgage with your present circumstances, you can act to strengthen your financial profile. Several mortgage types are available from the federal government to help you qualify if your credit score or income is lower.

Understanding the mortgage qualification process empowers you to navigate the home-buying journey confidently. If you’re ready to start the process, consider beginning your mortgage application online today.