How to Qualify for a Mortgage: Complete Requirements Guide

To qualify for a mortgage, you need a credit score of at least 620 (580 for FHA), a debt-to-income ratio under 43-45%, stable income with 2 years of employment history, and enough assets for down payment, closing costs and reserves. Lenders verify everything through documentation—pay stubs, tax returns, bank statements and credit reports. Meeting minimum requirements doesn’t guarantee approval; stronger qualifications get better rates.

The Four Pillars of Mortgage Qualification

1. Credit Score

Your credit score is the first thing lenders check.

Loan Type	Minimum Score	Ideal Score
Conventional	620	740+
FHA	580 (3.5% down)	680+
VA	None official	620+
USDA	640	680+
Jumbo	700	720+

What your score determines:

• Whether you qualify at all
• Your interest rate
• Your PMI rate (if applicable)
• Loan program options

2. Income and Employment

Lenders want stable, predictable income.

Requirements:

• 2 years of employment history
• Stable or increasing income
• Verifiable through documentation

What counts as income:

• W-2 wages
• Self-employment income (2-year average)
• Bonus and commission (2-year average)
• Social Security and pension
• Child support and alimony (if it will continue)
• Rental income

3. Debt-to-Income Ratio (DTI)

DTI measures your monthly debts compared to gross income.

Formula: DTI = (Monthly debt payments ÷ Gross monthly income) × 100

Loan Type	Maximum DTI
Conventional	43-45%
FHA	43-50%
VA	41% (flexible)
USDA	41% (with waiver possible)

What counts in DTI:

• Housing payment (PITI)
• Car payments
• Student loans
• Credit card minimums
• Personal loans
• Child support payments

4. Assets

You need funds for:

• Down payment
• Closing costs (2-5% of loan)
• Reserves (if required)

Acceptable asset sources:

• Savings and checking accounts
• Investment accounts
• Retirement accounts (with restrictions)
• Gift funds (properly documented)
• Proceeds from asset sales

Credit Requirements in Detail

What Lenders Look For

Payment history (35% of score):

• No recent late payments
• No collections in last 12-24 months
• No foreclosure or bankruptcy in recent years

Credit utilization (30% of score):

• Keep credit card balances under 30% of limits
• Under 10% is ideal

Credit history length (15%):

• Longer history is better
• Average age of accounts matters

Credit mix (10%):

• Mix of credit types (cards, loans)

New credit (10%):

• Limit recent applications
• Too many inquiries raises concerns

Red Flags That Hurt Approval

Issue	Impact
30-day late payment (recent)	Major negative
Collections	Moderate to major
Charge-offs	Major negative
Bankruptcy (< 2 years)	Usually disqualifying
Foreclosure (< 3 years)	Usually disqualifying
High credit utilization	Moderate negative

Improving Your Credit

Quick improvements (30 days):

• Pay down credit card balances
• Dispute errors on reports
• Become authorized user on family member’s old card

Medium-term (3-6 months):

• Make all payments on time
• Let negative items age
• Avoid new credit applications

Income Requirements in Detail

W-2 Employees

Documentation needed:

• 2 years of W-2s
• 30 days of pay stubs
• Verification of Employment from employer

Calculated income:

• Base salary: Full amount
• Overtime: 2-year average
• Bonus: 2-year average
• Commission: 2-year average

Self-Employed Borrowers

Documentation needed:

• 2 years of personal tax returns
• 2 years of business tax returns
• Year-to-date profit and loss
• Business license

Calculated income: Net income from tax returns averaged over 2 years, plus add-backs for depreciation and certain non-cash expenses.

Challenge: Aggressive write-offs reduce taxable income AND qualifying income.

Variable Income

Income Type	How It’s Calculated
Hourly with OT	Base + 2-year OT average
Commission	2-year average
Seasonal	2-year average
Part-time	2-year history required

Income That May Not Count

• New job (less than 2 years)
• Declining income trend
• Temporary/contract without history
• Unverifiable cash income
• Income ending within 3 years (some sources)

DTI Calculation Examples

Example 1: Approved

Monthly gross income: $8,000

Monthly debts:

• New housing payment: $2,200
• Car payment: $400
• Student loan: $300
• Credit card minimums: $150
• Total: $3,050

DTI: $3,050 ÷ $8,000 = 38.1% ✓

Example 2: Needs Work

Monthly gross income: $6,500

Monthly debts:

• New housing payment: $2,000
• Car payment: $550
• Student loan: $400
• Credit card minimums: $200
• Personal loan: $300
• Total: $3,450

DTI: $3,450 ÷ $6,500 = 53.1% ✗

Solutions: Pay off car or personal loan, increase income or buy less expensive home.

Lowering Your DTI

Reduce debt:

• Pay off car loans
• Pay off credit cards
• Consolidate student loans to lower payment

Increase income:

• Document all income sources
• Add co-borrower with income
• Wait for raise or promotion

Reduce housing target:

• Buy less expensive home
• Larger down payment = smaller loan

Asset Requirements

Down Payment

Loan Type	Minimum Down
Conventional	3%
FHA	3.5%
VA	0%
USDA	0%
Jumbo	10-20%

Closing Costs

Typically 2-5% of loan amount:

• Origination fees
• Appraisal
• Title insurance
• Recording fees
• Prepaid items

Reserves

Loan Type	Reserve Requirement
Conventional (primary)	0-2 months
FHA	0-2 months
Investment property	6 months
Jumbo	6-12 months
Multiple properties	Per property

Asset Documentation

Provide 2-3 months of:

• Bank statements (all pages)
• Investment account statements
• Retirement account statements

Large deposits require:

• Explanation letter
• Source documentation
• Paper trail

Property Requirements

Owner Occupancy

Occupancy Type	Rate Impact
Primary residence	Best rates
Second home	+0.25-0.375%
Investment	+0.5-0.75%

Property Type

Type	Availability
Single-family	All loan types
Condo	Most loan types (must be approved)
2-4 unit	Most loan types (if owner-occupied)
Manufactured	Limited options
Mixed-use	Limited options

Condition Requirements

• Must be habitable
• No health and safety hazards
• Roof in reasonable condition
• Functioning systems (HVAC, plumbing, electrical)
• FHA and VA have stricter requirements

Common Qualification Challenges

Not Enough Income

Solutions:

• Add co-borrower with income
• Wait for raise or promotion
• Document all income sources
• Buy less expensive home

Too Much Debt

Solutions:

• Pay off loans before applying
• Consolidate to lower payments
• Add co-borrower
• Reduce housing budget

Credit Issues

Solutions:

• Dispute errors
• Pay down credit cards
• Wait for negative items to age
• Consider FHA (lower credit requirements)

Insufficient Assets

Solutions:

• Gift from family
• Sell assets
• Down payment assistance programs
• Lower down payment loan program

Employment Gaps

Solutions:

• Letter of explanation
• Wait until 2 years in current job
• Show prior experience in same field

Strengthening Your Application

Before You Apply

6-12 months before:

• Check credit and fix errors
• Pay down credit cards
• Avoid new credit applications
• Save for down payment and reserves
• Document all income sources

1-3 months before:

• Get pre-approved
• Gather documentation
• Stabilize bank accounts
• Don’t change jobs

During the Process

Do:

• Respond quickly to lender requests
• Provide complete documentation
• Keep bank accounts stable
• Make all payments on time

Don’t:

• Change jobs
• Make large purchases
• Open new credit accounts
• Move money without paper trail
• Co-sign for anyone

The Qualification Process

Step 1: Pre-Qualification

Informal estimate based on self-reported information. Quick but not verified.

Step 2: Pre-Approval

Verified qualification based on documentation. Lender checks credit, income and assets.

Step 3: Full Application

After finding a property, complete application with property details.

Step 4: Processing

Lender gathers documentation and prepares file for underwriting.

Step 5: Underwriting

Underwriter reviews complete file and issues approval, conditions or denial.

Step 6: Conditional Approval

Most common outcome. Approval pending satisfaction of specific conditions.

Step 7: Clear to Close

All conditions met. Ready to close the loan.

Frequently Asked Questions

What credit score do I need for a mortgage?

Minimum 620 for conventional, 580 for FHA, no official minimum for VA. Higher scores get better rates. 740+ gets the best rates.

How much income do I need?

Enough to keep your DTI under 43-45%. As a rough guide, you can afford a home about 3-4x your annual income, depending on other debts.

Can I qualify with student loan debt?

Yes. Lenders count 0.5-1% of the balance as your monthly payment if you’re on income-driven repayment. High student loan debt may limit how much home you can afford.

Do I need 2 years at my job?

You need 2 years of employment history, not necessarily at the same job. Same field/industry is ideal. Job changes with pay increases are usually fine.

Can self-employed people get mortgages?

Yes, with 2 years of tax returns showing stable income. Self-employed borrowers face more scrutiny and must document income thoroughly.

What if I was denied?

Ask why and address those issues. Common fixes: improve credit, reduce debt, increase down payment, add co-borrower or wait and try again.