How To Qualify for a Home Loan

What You Need To Get Approved for a Home Loan

A young couple and their dog take a break from unpacking moving boxes to eat pizza on the floor of their new home

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A home loan is exactly what it sounds like: money you borrow to purchase a house. If you’re ready to become a homeowner, you’ll need to meet certain criteria to qualify for a home loan. Factors like your credit score, income, and debt-to-income ratio (DTI), and even the price of the home you want to buy will all play a role in how much you’ll pay in interest, and whether you get approved. 

Here’s how to qualify for a home loan.

Key Takeaways

  • Qualification criteria for home loans vary by lender and loan type.
  • Most lenders will consider factors like your credit score, down payment, debt-to-income ratio, and employment history when they review your home loan application.
  • There are steps you can take to improve your chances of approval, such as increase your income and save for a larger down payment.

What You Need To Qualify for a Home Loan

While requirements vary by lender and loan type, there are some overarching criteria that lenders look for regardless of those factors. 

Credit Score

Your credit score is a three-digit number that shows how responsible you are as a borrower. A high credit score shows lenders that you’re likely to repay your home loan on time and in full while a lower score signifies you might fall behind on your payments or default. Therefore, homebuyers with high credit scores tend to qualify for a greater selection of home loans and lock in the lowest interest rates. 


You’ll need a FICO score of at least 620 to be eligible for a conventional home loan backed by Fannie Mae. If your score is lower, you may be a candidate for an FHA-insured loan instead, which only requires a credit score of 580 (and in some cases lower, depending on other factors).

Down Payment

A down payment refers to the percentage of your home’s purchase price that you pay upfront when you close on the loan. Put simply, it’s the initial investment you make in your home.

Your down payment can play a vital role in your loan’s interest rate and term, and whether or not you have to pay private mortgage insurance (PMI). A larger down payment will also reduce the loan-to-value (LTV) ratio. That’s the percentage of the home’s value that is covered by the loan. A lower LTV means less risk for the lender and (usually) lower interest rates for the borrower.   

While you can get a home loan with only 3% down, most mortgages require a down payment of 5% or more. The more you have to contribute to your down payment, the more affordable your home loan will be in the long run. In most cases, a down payment of less than 20% of the purchase price will require you to pay private mortgage insurance.

Debt-to-Income Ratio

Lenders will also look at your debt-to-income (DTI) ratio, which is all of your monthly debt payments divided by your gross monthly income, expressed as a percentage. Your DTI ratio will explain whether or not you have enough money coming in to cover all of your bills and potential home loan payments. 

Let’s say your total monthly debt payments are $3,000 and your gross monthly income is $6,000. In this case, your DTI ratio is 50%. While you may be able to find a home loan with a DTI ratio as high as 50%, a lower DTI ratio is preferred when applying for a mortgage

Employment History

You’re more likely to get approved for a home loan with a stable employment history. Most lenders want to see that you’ve spent at least two years working in the same field, even if you’ve had different jobs. If you’re self-employed, don’t worry as lenders are usually open to extending loans to borrowers with nontraditional jobs. Just be prepared to provide your self-employment tax returns that show two years of your income history.

Overall Financial Situation

Lenders want to look at your financial situation as a whole. To do so, they’ll examine your total assets and cash reserves as this information will help them understand your ability to continue to repay your loan if you lose your job or another unforeseen situation occurs. 


You can expect lenders to look at any checking and savings accounts, certificates of deposit (CDs), stocks, bonds, mutual funds, and retirement accounts like 401(k)s and Roth IRAs

How To Improve Your Chances of Qualifying for a Home Loan

There are several steps you can take before you apply for a mortgage to position yourself in the best possible light. 

Work on Your Credit Score

Since your credit score is a major factor in your ability to get a home loan, it’s worth your time and effort to improve it. To do so, pay all of your bills on time as even one late or missed payment can ding your score. Also, catch up on any past-due accounts and make payments on any revolving accounts like credit cards and lines of credit. In addition, limit how often you apply for new accounts. 

Pay Off Debts

By paying off your debts, you’ll reduce your DTI ratio and in turn become a more attractive borrower. You can turn to DIY debt payoff strategies, like the debt avalanche or the debt snowball methods. Or you may seek professional help and work with a trusted debt settlement company or credit counselor who can help you with a debt management plan. Debt consolidation through a loan or balance transfer credit card may be an option as well. 

Save for a Down Payment

If you don’t have a lot of cash on hand for a down payment, you should focus on saving money so that you’ll have a better LTV when you apply. You may want to reduce your expenses, and/or boost your income through a raise or side hustle. A larger down payment will also help lower your monthly principal payments. 

Stay at Your Job

Ideally, you’d continue working for your current employer if you hope to apply for a home loan in the near future. If you’re thinking about jumping ship and finding a new job or pursuing your dream of self-employment, you may want to wait until you get approved for the home loan. Otherwise, you may have trouble proving stable employment with a steady income.

Consider a Co-Signer

A co-signer is someone who will take responsibility for your home loan in the event you default on your payments. If you don’t have the best financial situation, you may consider applying for a loan with a co-signer, like a parent or other close family member. Just be aware that your co-signer is accepting a lot of risk on your behalf. Be sure to make all of your mortgage payments in full and on time so you don’t damage their credit (as well as your own).

Compare Your Home Loan Options

Not all home loans are created equal. In fact, there are many options for you to consider. Your finances and personal preferences can help you choose the ideal loan.

Here are some of the most common types of home loans to put on your radar:

  • Conventional loans: A conventional loan is a mortgage loan that a homebuyer gets from a private, non-government lender like a bank or credit union. They can vary in terms of borrower eligibility, interest rates, term length, loan limits, down payment, and more. If they are also “conforming loans,” they will meet eligibility and other requirements set by Fannie Mae and Freddie Mac, government-sponsored entities that buy mortgages and package them into bonds.
  • FHA loans: FHA loans are issued by private lenders, but they're insured by the Federal Housing Administration (FHA). That insurance brings homeownership into reach for many first-time homebuyers with low- or moderate-incomes who might otherwise have a hard time getting approved by a conventional lender. FHA loans usually require lower down payments.
  • VA loans: VA loans are reserved for military service members, veterans, and the spouses and survivors of veterans. They don't require borrowers to make a down payment or pay for private mortgage insurance, and they're assumable.
  • USDA loans: Borrowers can use USDA loans, which are also backed by the U.S. government, to purchase, renovate, or refinance a property in certain rural communities across the country.
  • Jumbo loans: A jumbo loan is a home loan that is larger than conforming loans that lenders sell to Fannie Mae and Freddie Mac. Because of their size, they often carry higher interest rates than conforming loans. Because they are “non-conforming,” lenders can set their own eligibility and other requirements.

Frequently Asked Questions (FAQs)

How much of a home loan will I qualify for?

Lenders will look at a number of factors when they determine how much money they can lend you for a home loan. In general, however, most lenders want your mortgage payment and other housing expenses like home insurance to be less than 28% of your gross income.

What is the minimum income to qualify for a home loan?

There is no hard and fast minimum income requirement for home loans. Instead, lenders will consider your debt-to-income ratio and other factors to determine what you can realistically afford to borrow and repay.

How do I apply for a mortgage?

To apply for a mortgage, you’ll need to choose a lender and submit the formal application, which will require you to provide documents like your pay stubs, tax forms, and bank statements. You must also agree to a credit check.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fannie Mae. “Selling Guide: General Requirements for Credit Scores.”

  2. U.S. Department of Housing and Urban Development. “Does FHA Require a Minimum Credit Score and How Is It Determined?

  3. Consumer Financial Protection Bureau. “Determine Your Down Payment.”

  4. My Home by Freddie Mac. “Qualifying for a Mortgage When You’re Self-Employed.”

  5. Amerifirst. "Can I Start a New Job Before Closing on My Mortgage Loan?

  6. Chase. “What Percentage of Your Income Should Go Towards Your Mortgage?

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