What lenders check before they say yes to a mortgage

Lenders decide whether to give you a mortgage by looking at five main things: your credit score, your income and employment history, how much debt you already carry, how much cash you have for a down payment, and the value of the home itself. There is no single magic number that works for everyone—a lender's decision depends on how all five pieces fit together, and different lenders weight them differently.

The process is not pass-or-fail on any one factor. A lower credit score does not automatically disqualify you if your income is strong and stable. A smaller down payment does not if your credit is solid. What matters is the overall picture of whether you are likely to pay the loan back.

Key Takeaways

  • Most conventional lenders want a credit score of 620 or higher, though scores above 740 usually get better interest rates.
  • Your debt-to-income ratio—the percentage of your monthly income that goes to debt payments—typically cannot exceed 43 percent for a conventional loan.
  • Lenders verify your income through recent tax returns, W-2 forms, and pay stubs, and they want to see at least two years of steady employment.
  • Down payment requirements range from 3 to 20 percent depending on the loan type, and some programs require less if you meet other conditions.
  • The home itself must appraise for at least the purchase price, because the lender is using it as collateral for the loan.

Credit score: what number you need and why it matters

Your credit score is a three-digit number that summarizes your history of borrowing and repaying money. The three major credit bureaus—Equifax, Experian, and TransUnion—each calculate a score based on your payment history, the amount of debt you carry, how long you have had credit accounts open, and how many new accounts you have recently opened.

Most conventional lenders require a minimum credit score of 620 to consider your application. Scores between 620 and 679 are considered fair; lenders will work with you but typically charge a higher interest rate. Scores from 680 to 739 are good, and scores above 740 are very good or excellent. The higher your score, the lower your interest rate will be, which saves you thousands of dollars over the life of the loan.

If your score is below 620, you may still find lenders willing to work with you through FHA loans (Federal Housing Administration loans), which allow scores as low as 580 in some cases. These loans are designed for borrowers with less-than-perfect credit or smaller down payments. The trade-off is that you will pay mortgage insurance, which adds to your monthly payment.

Income and employment: what lenders need to see

Lenders want proof that you have a steady income and that you are likely to keep earning it. They typically ask for your last two years of tax returns, your most recent W-2 forms (or 1099s if you are self-employed), and your last two months of pay stubs. If you are self-employed or own a business, the process takes longer because lenders examine your business tax returns more closely.

Most lenders want to see at least two years of employment history in the same field or with the same employer. A recent job change does not automatically disqualify you, but you may need to explain it. If you changed jobs but stayed in the same industry, that is usually fine. If you took time off work—for school, caregiving, or other reasons—be ready to document what you were doing during that gap.

Income counts as anything regular and documented: W-2 wages, self-employment income, rental income from property you own, Social Security, pension payments, alimony, or child support. Bonus income and commission can count too, but lenders typically average it over the last two years to account for variation.

Debt-to-income ratio: the percentage that matters most

Your debt-to-income ratio (often called DTI) is the percentage of your gross monthly income that goes toward debt payments. Lenders calculate it by adding up all your monthly debt payments—car loans, student loans, credit card minimums, child support, and the new mortgage payment—and dividing by your gross monthly income before taxes.

Most conventional lenders want your DTI to be 43 percent or lower. Some will go as high as 50 percent if other factors are strong (excellent credit, large down payment, significant savings). FHA loans sometimes allow DTI up to 50 percent. If your DTI is above 43 percent, you have two options: increase your income or pay down existing debt before applying.

This is where paying off a car loan or credit card before you apply can make a real difference. Dropping your monthly debt payments by $300 lowers your DTI by roughly 1 to 2 percentage points, depending on your income. For someone earning $5,000 per month, that $300 reduction moves them from 45 percent DTI to 39 percent—suddenly in range for a conventional loan.

Down payment: how much you need to put down

The down payment is the cash you bring to the table on the day you close. The rest of the purchase price becomes the mortgage loan. Down payment requirements vary by loan type:

  • Conventional loans typically require 5 to 20 percent down. Some lenders offer 3 percent down if your credit score is 680 or higher and your DTI is under 43 percent.
  • FHA loans require 3.5 percent down if your credit score is 580 or higher. If your score is between 500 and 579, some lenders require 10 percent down.
  • VA loans (for military members and veterans) often require zero down payment if you have a valid Certificate of may be able to access.
  • USDA loans (for rural properties) also allow zero down payment for borrowers who meet income limits.

If you put down less than 20 percent on a conventional loan, you will pay private mortgage insurance (PMI), which protects the lender if you default. PMI typically costs 0.5 to 1.5 percent of the loan amount per year, added to your monthly payment. Once you have paid down the loan to 80 percent of the original home value, you can request to have PMI removed.

Cash reserves and savings: what lenders want to see

Lenders like to see that you have money in the bank beyond your down payment. This shows you can handle an unexpected expense—a job loss, a medical bill, a home repair—without immediately defaulting on the mortgage. The amount varies by lender and loan type, but many want to see two to six months of mortgage payments in savings after you close.

This does not mean you have to have that money sitting untouched. Lenders look at bank statements from the last two months and ask where large deposits came from. Gifts from family members are fine, but you will need a signed letter from the person saying it is a gift and not a loan. Money you earned through work, savings, or investments all count.

If you have very little in savings, it does not automatically disqualify you, especially if your credit and income are strong. But it may mean a higher interest rate or a requirement to put more down.

The home appraisal: why the property itself matters

The lender will order an appraisal of the home you want to buy. An appraiser visits the property, measures it, inspects its condition, and compares it to similar homes that have sold recently in the area. The appraisal report states what the home is worth in the current market.

The home must appraise for at least the purchase price. If you agreed to pay $300,000 but the appraisal comes in at $280,000, the lender will only lend based on the appraised value. You would need to either renegotiate the price with the seller, put more cash down, or walk away from the deal. This protects the lender because the home is collateral for the loan—if you stop paying, the lender can foreclose and sell the home to recover the money.

A low appraisal does not mean the home is a bad purchase; it means the market value is lower than the agreed price. It is a negotiation point, not a judgment on the home itself.

Frequently Asked Questions

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

Yes, through FHA loans, which allow scores as low as 580. Some lenders also work with scores in the 580 to 619 range on conventional loans, but you will pay a higher interest rate and may need a larger down payment or proof of significant savings.

What if I just started a new job?

Most lenders want to see two years of employment history, but a recent job change in the same field is usually acceptable if you can show a job offer letter and explain the move. Self-employment or a career change may require additional documentation or a waiting period.

Does my student loan debt count toward my debt-to-income ratio?

Yes. Lenders count the monthly payment on your student loans as part of your total debt. If you are on an income-driven repayment plan, they use the actual payment amount shown on your loan statement. If you have not yet started repaying, they may estimate a payment based on the loan balance.

What happens if the home appraises for less than the purchase price?

The lender will only lend based on the appraised value. You can renegotiate the price with the seller, increase your down payment to cover the gap, or withdraw from the purchase. The appraisal protects both you and the lender by ensuring the home is worth what you are paying for it.

Can I use a gift for my down payment?

Yes, but the person giving you the money must provide a signed letter stating it is a gift and not a loan you have to repay. The lender will ask to see this letter and will verify the gift came from the person's own account, not from a loan they took out.