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How to Qualify For a Mortgage: 6 Factors to Consider

By Jody McMaster · August 16, 2022 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Qualify For a Mortgage: 6 Factors to Consider

Do you lie awake thinking: Will I qualify for a mortgage? If you’re not crystal-clear about every loan program, down payment requirement, and credit threshold, join the vast club.

Let’s take some of the mystery out of how to qualify for a mortgage.

6 Mortgage Qualification Factors

What goes into qualifying for a home loan can be especially confusing. Here are some things that may come into play when qualifying for a home loan.

1. Mortgage Type

The type of mortgage you may want to seek as a primary-home owner will depend on your credit scores, income, the lender’s loan menu, and more.

Government-backed mortgages (FHA, VA, and USDA loans) are acquired through approved lenders, and conventional home loans are issued by a bank, credit union, or other private lender.

FHA loan: Mortgages backed by the Federal Housing Administration have lower credit requirements than conventional loans but tend to be more expensive for borrowers with good credit and a medium down payment.

VA loan: Loans insured by the Department of Veterans Affairs are for active-duty service members, veterans, and some surviving spouses. The VA also has a Native American Direct Loan program, which allows Native Americans to buy, build, or improve a home on federal trust land.

USDA loan: Loans backed by the U.S. Department of Agriculture are for moderate-income buyers who choose a home in a designated rural area. The USDA offers direct loans for low-income households.

Most mortgages come with a fixed interest rate, but a variable rate could be an option for some conventional loans, as could a variety of mortgage terms, or lengths. The fixed-rate 30-year mortgage dominates the U.S. landscape.

One last wrinkle: There are conforming loans and nonconforming loans. By meeting loan limits, a conventional conforming loan is eligible for purchase by Fannie Mae and Freddie Mac. If it isn’t eligible, it’s a nonconforming mortgage — like the government loans or a jumbo loan.

💡 Recommended: First-Time Home Buyer Programs

2. Down Payment

Unless you’re going for a VA or USDA loan, expect to put at least 3% down on a conventional loan and 3.5% down on an FHA loan.

Then again, low- and moderate-income buyers may qualify for down payment assistance through their state housing finance agency or city.

Down payment gifts are to be documented with a gift letter.

💡 Recommended: How to Afford a Down Payment on Your First Home

Conventional Loan Down Payments

When it comes to conventional loans, 20% down has always been the ideal. But some conventional loan products require just 3% down.

By the way, the median down payment reported most recently by the National Association of Realtors® is 13%.

Putting less than 20% down on a conventional loan will mean paying private mortgage insurance (PMI) for a number of years, unless you can avoid PMI by seeking a piggyback mortgage or lender-paid mortgage insurance.

FHA Loan Down Payments

FHA loans are popular with first-time homebuyers. How much so? Over 80% of FHA mortgages are issued to first-time buyers each year.

If your credit score is at least 580, you may qualify for a down payment of 3.5% on an FHA loan. Scores between 500 and 579? At least 10% down will be required.

If you’re hoping to secure an FHA 203(k) loan for a fixer-upper, you can also put as little as 3.5% down.

Upfront and annual mortgage insurance premiums always tag along with an FHA loan, and usually for the entire loan.

USDA Loan Down Payment

No down payment is required.

A loan insured by the USDA is aimed at moderate-income households that purchase or build in eligible rural areas. The USDA also directly issues loans to low- and very-low-income buyers in eligible rural areas and provides payment assistance.

USDA loans require an upfront guarantee fee and an annual premium for the life of the loan, but it’s lower than FHA loan mortgage insurance rates.

VA Loan Down Payment

The great perk of VA loans is that no down payment is usually required, but a sizable one-time funding fee is.

3. Credit Score

A credit score can distill your financial history down to a single number to prove your worthiness to mortgage lenders.

The FICO® Score range of 300 to 850 is categorized like this:

•   Exceptional: 800 to 850

•   Very Good: 740 to 799

•   Good: 670 to 739

•   Fair: 580 to 669

•   Poor: 300 to 579

If you’re seeking a conventional loan, you’ll likely need a credit score of at least 620.

For an FHA loan, applicants with a score as low as 500 may be considered. But 580 is the minimum credit score to qualify for the 3.5% down payment advantage.

A USDA loan usually requires a score of 640; a VA loan, a minimum of 580 to 620.

In some cases, you don’t have to have a FICO Score to qualify for a home loan. Fannie Mae’s nontraditional credit program and government loan programs allow for a credit profile to be built based on things like rent payments and utility bills.

💡 Recommended: Mortgage Loan Credit Score Minimums and Tips to Improve

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


4. Debt-to-Income Ratio

Your income alone only comes into play with a USDA loan or if you’re seeking down payment assistance.

Otherwise, your income doesn’t matter as much as your debt to income ratio does. Your DTI will be calculated by dividing your total monthly debt, including your proposed house payment, by your gross income each month, then expressed as a percentage.

For example, say you pay $1,500 a month for a mortgage, $100 a month for a car loan, and $400 a month for a student loan. Your monthly debt therefore comes to $2,000. If you make $6,000 a month before taxes and deductions, your debt-to-income ratio would be 33% ($2000 divided by $6000, multiplied by 100).

Depending on your credit score, size of down payment, and reserves, your DTI ratio may weigh heavier or lighter in the qualification process.

•   Conventional Loan DTI: The maximum DTI for a conventional loan is 45%, but exceptions can be made for strong compensating factors.

•   FHA DTI: FHA guidelines allow for a DTI of 43%, but higher ratios are allowed with compensating factors.

•   USDA Loan DTI: The USDA usually allows a maximum DTI of 41% but may make exceptions for those with higher credit scores and stable employment.

•   VA Loan DTI: VA guidelines call for a maximum DTI of 41%, but lenders set their own limits based on an applicant’s financial health.

5. Documentation: Proof of Employment, Income, Assets

Your down payment, credit score, and DTI ratio might be on the up and up, but not having the proper documentation in the mortgage loan process could hold things up.

Lenders might ask for:

•   Tax returns from the past two years.

•   Two years’ worth of W-2s or year-end pay stubs. If you are self-employed, other evidence of income.

•   Child support or divorce documents.

•   Bank statements.

•   Statements from additional assets.

•   Gift letter.

•   Photo ID.

•   Rental history and contact information.

6. Other Mortgage Qualification Considerations

If you’re still browsing for a home to make an offer on, you might consider loan pre-qualification or pre-approval.

Pre-qualification is a simpler version of pre-approval. You’ll provide basic information, which can be by phone or online, and a lender will estimate what size loan you might be approved for. No information is verified at this point.

For pre-approval, you’re required to give a lender access to your financial history. After reviewing your credit, income, and assets, the lender will offer a loan up to a specific amount. It doesn’t guarantee that you’ll be approved when you formally apply, though.

Pre-qualification and pre-approval can be great ways to dip your toe into the home-buying waters.

Then you may apply with more than one lender. Comparing loan estimates could help you determine what option is best for you financially.

Do I Qualify For a Mortgage?

If you’re wondering, “How much home loan can I qualify for,” it depends as many factors play into this figure, but there is a variety of online mortgage calculators to help get you started:

•   Mortgage Calculator

•   Home Affordability Calculator

The Takeaway

How to qualify for a mortgage? You’ll need to know the requirements for particular mortgages and whether your situation is a good fit.

Home shoppers with stable finances would be smart to look into SoFi home mortgage loans with competitive fixed rates. Qualifying first-time homebuyers can put just 3% down, and others, 5% down.

Check out the new incentives and view your rate.


SoFi Mortgages
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