Minimum Mortgage Requirements for 2024

Down payment. You’ll need at least a 3% down payment for a fixed-rate conventional loan on a single-family home. For an adjustable-rate mortgage (ARM), you’ll need at least 5%. The funds can come from a gift or your own money.Mortgage insurance. Conventional loans with less than 20% down require private mortgage insurance (PMI) to protect lenders if you default. The higher your down payment and credit score, the lower your PMI payments will be. You may pay between $30 and $70 per $100,000 you borrow in annual PMI premiums. These premiums are often paid as part of your monthly payment; however, you can choose to pay your PMI upfront in a lump sum at closing.

Credit score. Conventional mortgage guidelines require a minimum 620 credit score. You’ll snag the best mortgage rates and lower PMI premiums with credit scores of 780 or higher.

Understanding average median credit scoring

Lenders are allowed to take an “average median score” to meet the minimum credit score requirement, which is great news for borrowers who need two incomes to qualify but one applicant has a score below the 620 minimum. In the past, that meant a loan denial for a conventional loan. Now, a high-credit-score borrower can potentially lift a low-credit-score borrower over the 620 threshold, which could lead to a loan approval.

Employment. Lenders require proof of steady income and need to verify that your income is likely to continue in the future.

Self-employment. If you run your own business, Fannie Mae and Freddie Mac usually require two years’ worth of personal and business federal tax returns. However, some borrowers with less than two years of self-employment history may still qualify as long as they have at least a single year of personal and business tax returns. Ask your loan officer for more details.

Income limits. With the exception of Fannie Mae’s HomeReady® and RefiNow™ programs, as well as Freddie Mac’s Home Possible® mortgage (covered below), most conventional loans are open to borrowers at any income level.

Debt-to-income ratio. Lenders measure your debt-to-income (DTI) ratio by dividing your total debt by your gross monthly income. Conventional lenders prefer a maximum 45% DTI ratio but may bump it to 50% if you have higher credit scores and additional mortgage reserves.

Cash reserves. Also called mortgage reserves, these are rainy-day funds you’ll need — in addition to your down payment and closing costs — to cover several months’ worth of mortgage payments in an emergency. Lenders may require proof of up to six months of cash reserves depending on your credit scores, DTI ratio and down payment, and in the event that you’re buying a two- to four-unit home.

Occupancy. One big advantage of conventional loans over government-backed loan programs is that borrowers can purchase a second home (commonly called a vacation home) or investment property. Government-backed loan programs only allow you to finance a primary residence you live in full time.

Property types. Conventional mortgage loan requirements allow you to finance a one- to four-unit home located in a regular subdivision, condominium project, co-op project or planned unit development (PUD), as well as manufactured homes built on a permanent foundation.

Home appraisals. Conventional loan guidelines typically require a home appraisal, an unbiased opinion of a home’s value from a licensed property appraiser. Borrowers making at least a 20% down payment on a one-unit home may be eligible for a property inspection waiver (PIW) that allows you to forego the appraisal.

Home appraisal alternatives

Conventional loan guidelines allow some buyers to skip a full home appraisal. Instead, new automated valuation models and certifications by trained inspectors may be acceptable. Ask your loan officer what alternative appraisal options are available to you.

In addition to the standard requirements above, you’ll need to meet a few extra requirements to be approved for a HomeReady or Home Possible loan.

• Income limits. These conventional, 3%-down-payment programs are the only conventional loans with income limits. You can look up the maximum income based on your address using Fannie Mae and Freddie Mac’s online tools:
  • For Fannie Mae HomeReady loans, use the Area Median Income (AMI) Lookup Tool
  • For Freddie Mac Home Possible loans, use the Income and Property Eligibility Tool
• Homebuyer education. HomeReady and Home Possible borrowers must complete a homebuyer education course before closing.

Both programs offer extra wiggle room to help you qualify, including:

• Flexibility for borrowers with no credit score. Homebuyers without a credit score can prove their creditworthiness with alternative data. For example, lenders may accept 12 months of consecutive, on-time rent payments, along with utility bills and car insurance payments, to prove your history of paying bills on time.
• Adding income from a long-term roommate. You can add rental income received from someone who has lived with you for at least 12 months to help qualify for a HomeReady loan. This is called “boarder income” and to use it you’ll need proof the person has lived with you for a full year.
• Income from restricted stock. Good news for those with restricted stock as part of their compensation: You can now include income from restricted stock as long as the stock is fully vested and documented.
• Alternative down payment sources. HomeReady and Home Possible guidelines allow for the entire down payment to come from sweat equity, which means you can convert your DIY skills — rehabbing a home that needs improvements — into cash toward your down payment and closing costs.

RefiNow loans allow homeowners with Fannie Mae loans to qualify for a refinance more easily. The program is designed to help homeowners who may not qualify under standard conventional loan guidelines, as long as they can meet these requirements:

• Income limits. Only borrowers who earn up to 100% of their area’s median income can take advantage of RefiNow loans.
• Credit score. There is no minimum credit score requirement.
• Debt-to-income ratio. Homeowners have a more generous 65% DTI ratio, compared with the 45% maximum that comes with standard conventional loan programs.
• Equity. You’ll also need to maintain at least 3% equity, which lenders often represent as a maximum 97% LTV ratio.

Down payment. The minimum down payment is 3.5% with a credit score at or above 580, or 10% with a score of 500 to 579.

Mortgage insurance. FHA borrowers must pay two types of FHA mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) worth 1.75% of the loan amount, which is typically financed into the mortgage. The second is the annual mortgage insurance premium (MIP), which ranges from 0.15% to 0.75% of the loan amount, is divided by 12 and added to your monthly payment.

Credit score. FHA loan guidelines set the lowest minimum credit score requirements of any standard loan program, allowing scores as low as 500 with a 10% down payment. A 580 score is required for borrowers making a minimum 3.5% down payment. FHA-approved lenders also use the Credit Alert Interactive Verification Reporting System (CAIVRS) to confirm you don’t have any delinquent federal debt, like student loans or unpaid child support.

Employment. FHA lenders must look at the borrower’s income stability and employment history for the past two years. Job-hoppers and borrowers with gaps in their job history who apply for an FHA loan may have to provide extra documentation and explanations.

Self-employment. You’ll need to document at least two years of self-employment for an FHA loan.

Income limits. FHA guidelines don’t set any limits on qualifying income for an FHA loan.

Debt-to-income ratio. For FHA loans, your DTI ratio max is 43%. This ratio considers your mortgage PITI payment (principal, interest, taxes and insurance) and all other revolving monthly debt, including car loans, credit card payments and other loans. You may be approved for a higher DTI ratio with strong credit scores or extra cash reserves.

DTI ratio exception for energy-efficient homes

If you’re buying an energy-efficient home, you may qualify with a DTI ratio as high as 45%.

Cash reserves. Cash reserves are liquid funds you may need to show you have “in reserve” to cover mortgage payments if needed. FHA loan qualifications don’t usually require cash reserves unless you’re buying a two- to four-unit home or trying to qualify with a lower credit score.

Occupancy. You can only take out an FHA loan to buy a primary residence you intend to live in for at least one year.

Property types. An FHA loan can be used to finance one- to four-unit homes, FHA-approved condominiums, cooperative units and manufactured homes affixed permanently to land.

Home appraisals. You’ll need an appraisal to buy a home with an FHA loan, regardless of your down payment. FHA appraisal guidelines have stricter safety and habitability requirements, and FHA appraisals are more expensive than conventional home appraisals.

Down payment. The VA loan program doesn’t require a down payment. However, you may need one if you try to buy a new home while you own another VA-financed home that won’t be paid off by closing.

Mortgage insurance. No mortgage insurance is required on VA loans, regardless of your down payment. Instead, you’ll pay a VA funding fee between 1.40% and 3.60%, depending on your down payment and whether you’ve used your home loan benefits before.

Credit score. VA guidelines don’t set a minimum credit score, though 620 is the lowest score many VA-approved lenders will accept.

Employment. You’ll need a two-year history of employment, although VA guidelines give some flexibility if your employer verifies the income is stable and likely to continue in the future.

Self-employment. The VA guidelines are similar to conventional lending guidelines for self-employed borrowers, and include requirements for two years’ worth of personal and business tax returns, as well as an up-to-date balance sheet and profit and loss statement.

Income. VA borrowers need to prove they earn stable income. Luckily, the VA guidelines give loan underwriters leeway to evaluate each person’s situation, especially when it comes to recently discharged veterans.

Residual income. The VA calculates how much extra money is left over in a military household after standard paycheck deductions and estimated maintenance expenses. The result is called “residual income,” and the amount required varies based on your location and the size of your family.

Debt-to-income ratio. The maximum DTI ratio the VA will accept is 41%, according to VA guidelines.

Cash reserves. Most VA loans don’t require cash reserves. However, you may need reserves equaling three to six months’ of your monthly mortgage payments if you’re buying a multiunit property or renting out your current home while purchasing a new one.

Occupancy. You must live in a home to finance it with a VA home loan.

Property types. You can finance a single-family home, condominium, manufactured home or two- to four-unit home with a VA loan.

Home appraisals. VA-approved lenders must order appraisals through the VA’s online system. The VA appraisal can only be completed by a VA-approved appraiser to verify the property meets minimum VA property standards. Appraisal waivers aren’t permitted for VA loans, although they are for conventional mortgages.

Down payment. The USDA loan doesn’t require a down payment.Mortgage insurance. Rather than mortgage insurance, USDA loans require guarantee fees that work much like FHA mortgage insurance. You’ll pay an upfront guarantee fee of 1% of your loan amount, which is usually rolled into your mortgage. You’ll also owe an annual fee of 0.35% of your loan amount, paid in equal monthly installments that are added to your monthly mortgage payment.

Credit score. The USDA doesn’t set a minimum score, but USDA-approved lenders usually require at least a 640 score to qualify.

Employment. The USDA requires documentation of employment for all adult members of a household.

Self-employment. Self-employment guidelines require a two-year history, along with a year-to-date profit and loss analysis.

Income. There are two unique income-qualifying requirements with USDA loans:

• Your income can’t exceed specific limits. If you earn more than 115% of the median household income in your area, you won’t qualify for a USDA mortgage. Use the income eligibility search tool to check on the limits in your state.
• Your total household income is counted, including nonborrowers. All family members’ incomes must be included in the calculations to make sure the total income is at or below your neighborhood income limits.

Debt-to-income ratio. The DTI ratio limit is set at 41%, with exceptions up to 44% for borrowers with a 680 credit score, cash reserves and job stability for the past two years.

Cash reserves. USDA loans don’t typically require cash reserves, but they can be used to qualify for an exception for a high DTI ratio, for example.

Occupancy. The USDA only allows financing on primary residences.

Property location. To be eligible for a USDA loan, your home search will be limited to USDA-designated rural areas. Check the USDA’s property eligibility tool to see if a home you’re interested in is eligible for USDA financing.

Square footage limitations. USDA-financed properties are generally capped at 2,000 square feet, with a guideline minimum of 400 square feet.

Property types. Single-family homes, manufactured homes and condos in rural-designated areas can be financed with a USDA loan. Certain conditions apply to manufactured homes, and there are limits on how land can be used for producing income.

Home appraisals. The USDA nearly always requires an appraisal, and doesn’t offer any appraisal waiver options for purchase loans.