Credit Score and History
Your credit score is one of the most significant factors in determining your mortgage amount. Lenders use this score to assess your creditworthiness and determine risk levels.
- Excellent (750 and above): Typically qualifies for the best interest rates and higher loan amounts
- Good (700-749): Generally eligible for favorable terms
- Fair (650-699): May face higher interest rates and lower loan amounts
- Poor (below 650): Could struggle to get approved or face very high rates
Most lenders require a minimum score of 620 for conventional loans, while FHA loans may accept scores as low as 580. Higher scores (740+) typically qualify for the best rates.
Income and Employment History
Lenders want to ensure you have a stable income to make mortgage payments. They typically examine:
- Steady employment history (usually 2+ years)
- Reliable income sources
- Recent pay stubs and W-2 forms
- Tax returns for self-employed applicants
Most lenders follow the 28/36 rule, which states that your mortgage payment shouldn't exceed 28% of your gross monthly income, and total debt payments shouldn't exceed 36%.
Debt-to-Income Ratio (DTI)
Your DTI is a critical metric calculated by dividing monthly debt payments by gross monthly income.
"A lower DTI ratio indicates a good balance between debt and income and typically makes you more attractive to lenders." - Consumer Financial Protection Bureau
Maximum DTI Ratios by Loan Type:
| Loan Type | Maximum DTI |
|---|---|
| Conventional | 45-50% |
| FHA | 43-57% |
| VA | 41% |
| USDA | 41% |
Down Payment
The size of your down payment can significantly affect your mortgage amount. A larger down payment reduces the lender's risk, potentially leading to:
- Lower interest rates
- Higher loan amounts
- Avoidance of private mortgage insurance (PMI) if the down payment is 20% or more
For tips on saving for a down payment, check out Bankrate's guide.
Property Type and Location
Different property types may have varying requirements:
- Single-family homes (typically easiest to approve)
- Condominiums
- Multi-family units
- Investment properties
Properties in high-demand areas may require larger loans, while those in less desirable locations might limit the amount you can borrow.
Assets and Reserves
Lenders want to see that you have:
- Sufficient funds for the down payment
- Money for closing costs
- Emergency reserves (typically 2-6 months of payments)
- Documented source of funds
Acceptable Asset Sources:
- Savings accounts
- Checking accounts
- Investment accounts
- Gift funds (with proper documentation)
- Retirement accounts
Tips for Improving Your Approval Odds
- Monitor and improve your credit score
- Save for a larger down payment
- Reduce existing debt
- Maintain stable employment
- Gather documentation early
- Avoid major purchases before applying
Remember that lenders may have different requirements, and individual circumstances can affect approval decisions. Consider consulting with multiple lenders and a HUD-approved housing counselor to understand your options better.
For more information on improving your credit score, visit Experian. You can also use online tools like NerdWallet's Mortgage Calculator to estimate how much you can afford to borrow based on your income and other factors.