The three things lenders check before they say yes
A lender will say yes to a mortgage when three things line up: you have enough money for a down payment, your income is stable enough to make monthly payments, and your credit history shows you pay debts on time. None of these is a single number or a single test. Each one is a range, and different lenders draw the line in different places.
This means you can be ready to buy even if you don't have perfect credit or a huge down payment. It also means that having one strong thing—say, a large down payment—can sometimes offset a weaker one, like a recent job change. The lender's job is to decide whether the whole picture adds up to someone who will pay back the loan.
Key Takeaways
- Lenders typically want to see a down payment of 3 to 20 percent of the home's price, though the exact amount depends on the loan type and your credit score.
- Your debt-to-income ratio—the percentage of your monthly income that goes to all debts—usually needs to be below 43 percent, though some lenders go as high as 50 percent.
- A credit score of 620 or higher opens doors to most conventional mortgages, but scores above 740 usually mean lower interest rates.
- Lenders will verify your income through recent tax returns and pay stubs, so self-employed borrowers need two years of tax returns and may face stricter requirements.
- You will need to show proof of savings for the down payment and closing costs, and lenders want to see where that money came from.
How much money you need to put down
The down payment is the chunk of the home's price you pay upfront. The rest comes from the mortgage loan. Down payments range from 3 percent to 20 percent of the purchase price, depending on the loan program and your credit score.
A conventional loan—the most common type—usually requires 5 to 20 percent down. If you put down less than 20 percent, you will pay for private mortgage insurance (PMI), which protects the lender if you stop paying. PMI costs roughly 0.5 to 1 percent of the loan amount per year, added to your monthly payment. An FHA loan, backed by the Federal Housing Administration, allows down payments as low as 3.5 percent but requires mortgage insurance for the life of the loan. A VA loan, for military members and veterans, often requires no down payment at all.
The down payment also affects your interest rate. A larger down payment usually means a lower rate because the lender's risk is smaller. The difference between putting 3 percent down and 20 percent down can mean paying tens of thousands more in interest over 30 years.
Whether your income can cover the payments
Lenders calculate your debt-to-income ratio (DTI) by dividing your total monthly debt payments by your gross monthly income. This includes the new mortgage payment, car loans, credit cards, student loans, and any other regular payments. Most lenders want this ratio to be 43 percent or lower, though some will go to 50 percent if your credit is strong or your down payment is large.
Here is how it works in practice: if you earn $5,000 per month before taxes, your total debt payments (including the new mortgage) should not exceed $2,150. If you already owe $800 on a car and $200 on credit cards, you have $1,150 left for a mortgage payment. A lender will work backward from that number to tell you the maximum loan amount you can carry.
Income verification is straightforward for salaried employees: the lender asks for recent pay stubs and your last two years of tax returns. Self-employed borrowers face stricter scrutiny. You will need two years of tax returns, and the lender will average your income across those years. If your income has been rising, this can work against you. If it has been falling, it works against you too.
What your credit score and history tell a lender
Your credit score is a three-digit number that summarizes your payment history. It ranges from 300 to 850. Most lenders require a score of at least 620 for a conventional mortgage, though some FHA lenders will go as low as 580. The higher your score, the lower your interest rate will be.
The score itself is built from five things: payment history (35 percent of the score), amounts you owe (30 percent), length of credit history (15 percent), credit mix—having different types of debt like cards and loans (10 percent)—and recent inquiries (10 percent). A single late payment can drop your score 100 points. Paying everything on time for two years can raise it significantly.
Lenders also look at the details behind the score. A recent bankruptcy or foreclosure is a red flag. A single missed payment from five years ago is less concerning. If you have had credit problems, lenders want to see that you have rebuilt since then—on-time payments, lower balances, and no new missed payments.
Proof that the money is actually yours
Lenders will ask to see your bank statements for the last two months to verify that you have the down payment and closing costs saved. They are not just checking the balance; they are checking where the money came from. A sudden deposit of $50,000 raises questions. A gradual buildup of savings over time does not.
If someone is giving you money for the down payment—a parent, for example—the lender will want a letter from that person stating the money is a gift, not a loan. If it is a loan, it counts as debt and affects your DTI. If it is a gift, it does not, but you still have to document it.
Lenders also verify employment by contacting your employer directly, usually in the final days before closing. They want to confirm you still work there and earn what you said you earn. A job change right before applying can slow things down or raise questions, though it does not automatically disqualify you.
What happens after you know you are ready
Once you understand where you stand on down payment, income, and credit, the next step is getting pre-approved. This is different from a pre-qualification, which is just a rough estimate. A pre-approval means a lender has actually reviewed your documents and is willing to lend you a specific amount at a specific rate.
Pre-approval takes a few days to a week. You will need to provide pay stubs, tax returns, bank statements, and permission for the lender to pull your credit report. The lender will give you a letter stating the maximum loan amount you may have access to for. This letter is what you show to a real estate agent and what you bring to an offer.
Pre-approval is not a may provide. The lender will verify everything again before closing, and if something changes—you lose your job, you rack up new debt, your credit score drops—the approval can be withdrawn. But it is the clearest signal that you are ready to buy.
Frequently Asked Questions
Can I buy a house with a credit score below 620?
Some FHA lenders will work with scores as low as 580, and a few specialized lenders go lower, but you will pay a higher interest rate and may need a larger down payment. The cost of borrowing with a low score can be substantial—sometimes a full percentage point higher than someone with a 740 score.
What if I have student loans but they are in deferment?
Lenders count deferred student loans as debt for DTI purposes, even though you are not making payments right now. They use an estimated payment based on the loan balance. This can reduce the mortgage amount you may have access to for, so it is worth asking your lender exactly how they are calculating it.
Do I need to have perfect credit to get a mortgage?
No. Most lenders approve mortgages for people with scores in the 620 to 680 range, which includes people with past late payments, collections, or even a bankruptcy several years old. The older the problem and the better your recent payment history, the less it matters.
What if my income is irregular or seasonal?
Lenders average your income over two years for self-employed people and those with commission or seasonal work. If you have been in the same field for two years and your average income is stable, you can still may have access to. If you just switched to a commission job, you may need to wait a year or two before applying.
Can I use a co-signer if I don't may have access to on my own?
Yes. A co-signer's income and credit are added to the application, and their debt counts toward your DTI. They are equally responsible for the loan, so if you stop paying, the lender can pursue them. This is common for first-time buyers with a parent co-signing.