What lenders check before they say yes

Lenders use five main things to decide whether to give you a mortgage: your credit score, your debt-to-income ratio, your down payment, your employment history, and the property itself. None of these is a simple yes-or-no gate. A lower credit score does not automatically disqualify you—it usually just means a higher interest rate. A higher debt-to-income ratio might still work if your income is stable and your down payment is large. The lender's job is to predict whether you will pay them back, and they use these five factors together, not separately.

The process starts with a pre-qualification conversation, where a loan officer asks about your income, debts, and savings. This is informal and takes minutes. A pre-approval is more serious—the lender pulls your credit report, verifies your income with your employer or tax returns, and checks your bank statements. Pre-approval usually lasts 60 to 90 days. Neither one means you have the mortgage yet. Both tell you and the seller that you are a serious buyer and that a lender has looked at your actual numbers.

Key Takeaways

  • Lenders look at your credit score, income, debts, down payment, and employment history together—not as separate pass-or-fail tests.
  • A debt-to-income ratio below 43 percent is standard, but some lenders go higher if your credit score is strong or your down payment is large.
  • Most lenders want to see two years of stable employment or self-employment income, though recent job changes do not always disqualify you.
  • Your down payment size affects both whether you get approved and how much you pay in interest and insurance over the life of the loan.
  • Pre-approval from a lender is different from pre-qualification and shows a seller you have real financing backing, not just a rough estimate.

Credit score and what it actually means

Your credit score is a three-digit number that summarizes your history of borrowing and repaying. The most common score used by mortgage lenders is the FICO score, which ranges from 300 to 850. Most lenders want to see a score of 620 or higher, but the exact threshold varies by lender and loan type. A score of 740 or above usually gets you the best interest rates. A score between 620 and 739 typically means a higher rate. A score below 620 makes mortgages harder to find, though some lenders specialize in lower scores.

Your credit score reflects whether you paid bills on time, how much debt you carry compared to your credit limits, how long you have had credit accounts open, and whether you have had collections, foreclosures, or bankruptcies. A single late payment can lower your score by 100 points or more, but the damage fades over time. A bankruptcy stays on your report for seven to ten years, but its impact weakens after two or three years. If your score is lower than you want, you can request your credit report for free from annualcreditreport.com, find errors, and dispute them with the credit bureau.

Debt-to-income ratio and how lenders calculate it

Your debt-to-income ratio is the percentage of your gross monthly income that goes to debt payments. Lenders add up all your monthly debt: car loans, student loans, credit card minimums, child support, and the new mortgage payment they are considering. They divide that total by your gross monthly income (before taxes). Most lenders want this ratio to be 43 percent or lower. Some will go to 50 percent if your credit score is high, your down payment is large, or your savings are substantial.

Here is a concrete example: if you earn $5,000 per month gross and your current debts total $1,500 per month, your current ratio is 30 percent. If the new mortgage payment would be $1,200, your total debt would be $2,700, and your new ratio would be 54 percent. That exceeds the 43 percent threshold, so you would need to either earn more, pay down existing debt, or look at a less expensive home. Some lenders will also count housing expenses like property taxes and insurance separately, so ask your loan officer how they calculate the ratio.

Down payment size and what it costs you

Your down payment is the cash you put toward the home upfront. The rest is borrowed. A larger down payment lowers the amount you borrow, which lowers your monthly payment and the total interest you pay over 30 years. It also affects whether you have to pay mortgage insurance. If you put down less than 20 percent, most lenders require private mortgage insurance (PMI), which is an extra monthly fee that protects the lender if you stop paying. PMI typically costs 0.5 to 1.5 percent of the loan amount per year, divided into monthly payments.

Down payment minimums vary by loan type. Conventional loans usually require 3 to 20 percent down. FHA loans (backed by the Federal Housing Administration) allow 3.5 percent down but require mortgage insurance for the life of the loan, not just until you reach 20 percent equity. VA loans (for military members and veterans) often allow zero down. USDA loans (for rural properties) also allow zero down for borrowers who meet income limits. The smaller your down payment, the more you pay in interest and insurance over time, so the trade-off is between having cash now and paying more later.

Employment history and income verification

Lenders want to see two years of stable employment or self-employment income. If you have been at the same job for two years or more, this is straightforward—the lender will contact your employer to confirm your position and income. If you changed jobs within the past two years, the lender will look at whether the new job is in the same field and whether your income stayed the same or increased. A promotion or a move to a higher-paying role in the same industry usually does not hurt you. A career change or a drop in income raises questions.

If you are self-employed, the lender will ask for two years of tax returns and possibly profit-and-loss statements. They will average your income over those two years, so a recent increase in business might not count yet. If you have been self-employed for less than two years, some lenders will still work with you, but they may require a larger down payment or charge a higher rate. Seasonal income (like construction or teaching) is averaged over the full year, not just the busy months. If you receive bonuses, commissions, or overtime, the lender will usually count only the income you have received for at least two years.

The property appraisal and what happens if it comes in low

The lender will order an appraisal of the home you want to buy. An appraiser visits the property, measures it, looks at its condition, and compares it to similar homes that sold recently in the area. The appraisal protects the lender: if the home is worth less than the purchase price, the lender will not lend more than the appraised value. If you agreed to pay $300,000 but the appraisal comes in at $280,000, the lender will only lend based on $280,000. You then have to decide whether to pay the $20,000 difference in cash, renegotiate the price with the seller, or walk away.

An appraisal can also reveal problems that affect the loan. If the home has structural damage, a failing roof, or major systems that need replacement, the appraiser will note it. The lender may require repairs before closing, or may refuse to lend on the property at all. This is why a home inspection (which you pay for separately) is important—it gives you detailed information before you are locked into a contract. The appraisal is the lender's check, not yours, and it happens after you have made an offer.

Savings and cash reserves

Lenders like to see that you have savings beyond your down payment. Cash reserves show that you can handle an unexpected expense—a job loss, a medical bill, a major home repair—without immediately defaulting on the mortgage. The amount varies by lender, but many want to see two to six months of mortgage payments in savings. If you have substantial savings, it can offset a lower credit score or a higher debt-to-income ratio. If you have little or no savings, a lender may require a larger down payment or deny you altogether.

Your savings does not have to be in a separate account. Lenders will look at your bank statements for the past two months and count liquid assets—checking, savings, money market accounts, and sometimes retirement accounts. They will not count the equity in a car or a home you already own, because that is not liquid. If you recently received a large gift for the down payment, the lender will ask for a letter from the gift-giver stating that it is a gift, not a loan, and will want to see the money move into your account.

Frequently Asked Questions

Can I get a mortgage with a credit score below 620?

Some lenders specialize in lower scores, but they typically charge higher interest rates and require a larger down payment. FHA loans allow scores as low as 500 in some cases, though 580 or higher is more common. The lower your score, the fewer lenders will work with you and the more expensive the loan will be.

What if I just changed jobs?

A recent job change does not automatically disqualify you. If the new job is in the same field and your income is the same or higher, most lenders will approve you. If you changed careers or took a pay cut, the lender may ask for more documentation or require a larger down payment. Some lenders will not count income from a job you have held for less than 30 days.

Does a co-signer help if my income is too low?

Yes. A co-signer's income and debts are added to yours for the purpose of calculating your debt-to-income ratio. The co-signer is equally responsible for the loan if you do not pay. The co-signer's credit score also matters, so having a co-signer with strong credit can help even if their income is modest.

What if the appraisal comes in lower than the purchase price?

You have three options: pay the difference in cash, ask the seller to lower the price, or walk away. The lender will not lend more than the appraised value. If you walk away, you may lose your earnest money deposit depending on your contract terms, so understand your contingencies before you make an offer.

How long does pre-approval last?

Pre-approval typically lasts 60 to 90 days. After that, the lender may ask for updated pay stubs, bank statements, or a new credit report. If your financial situation changes—a job loss, a new debt, a drop in credit score—tell your lender immediately, as it may affect your approval.