Buying a home is so exciting, but for some the thrill can wear off when it comes to applying for a mortgage. For many, qualifying for a loan seems like such a daunting process. Where do I start? What do I need? Who do I go to? We’re here to help! We have answers to some of the most frequently asked questions when it comes to qualifying for a home loan.
How much do I need for a down payment?
There are several types of mortgages offered by various lenders, so there isn’t one right answer to this question. It used to be that you needed 20% for your down payment, but in today’s market, down payments are much lower and sometimes aren’t required at all.
FHA loans are very popular because they have flexible requirements and one of the lowest down payments requiring only 3.5% with a credit score of at least 580. The chart below shows various down payment requirements for different types of loans.
What credit score do I need to qualify for a mortgage?
Your credit score is a number that represents your credit “worthiness” based on your credit history. Credit scores range from 300 to 850. The higher your score, the better.
Your credit report tells a lender how responsible you’ve been with your finances. They can legally request this document, so they can determine how risky it is to lend you money. Any bankruptcies, foreclosures, or financial issues that are public record are taken into account.
Qualifying for a mortgage greatly depends on your credit score. Ideally, you want a credit score of 680 or higher, but there are some lenders that accept lower scores. Having a poor credit score is not the end of the world, but it can make it more difficult to get approved for a home loan. Whether your credit score is good or bad, it’s wise to get a copy of your report.
| Type of Loan | Down Payment Amount | Minimum Qualifying Credit Score |
| VA Loans | No down payment | 620 credit score |
| USDA Loans | No down payment | 620 credit score |
| FHA Loans | 3.5% down payment | 580 credit score *10% down with a score between 500-579 |
| 203k Loans | 3.5% down | 640 credit score |
| Conventional 97 | 3% down | 620 credit score |
| Conventional Loans | 5%-20% down | 640 credit score |
Does income affect qualifying for a loan?
Your income is another factor that’s taken into account when applying for a home loan. You need 2 years of documented, consistent income from the same company or industry to qualify along with your W2 forms. Self-employed borrowers and commision based jobs can have a harder time. If you earn commissions, you simply need to average your income from the last two years of tax returns.
Not all financial assets are classified as income. The following do not qualify as income when applying for a loan: income from the lottery, gambling, unemployment pay, single bonuses, unverifiable income, and income from rental properties.
What documentation do I need to apply for a loan?
Your loan office needs several documents to process your loan. Being prepared ahead of time will save you the headache and will get things moving quicker for you. Have these documents ready to send to your lender:
- W2’s from the past 2 years
- 3 months of pay stubs
- Bank statements from the past 3 months
- Previous 2 years of tax returns
- List of your debts and assets
- Divorce decree
- Any additional income documentation