- 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
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.
Current minimum mortgage requirements for RefiNow™ loans
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.
See current conventional mortgage rates today.
FHA mortgage requirements
It may be easier to qualify for an FHA loan, a mortgage backed by the Federal Housing Administration (FHA), than a conventional loan. FHA-approved lenders are protected against losses when you pay for FHA mortgage insurance. This extra insurance allows lenders to make loans to borrowers with lower credit scores and more debt than conventional loans, because the insurance covers their losses if the borrower defaults.
Borrowers struggling to qualify for a mortgage will have more FHA buying leverage in 2024: FHA loan limits increased to $498,257 for most parts of the country. Higher-cost areas get even more bang for the buck, with maximum loan amounts as high as $1,149,825.
Current minimum mortgage requirements for FHA loans
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.
See current FHA loan rates today.
VA mortgage requirements
The U.S. Department of Veterans Affairs (VA) makes qualifying for a home loan easier for military borrowers. VA loan borrowers won’t have to make a down payment if they have full VA entitlement, and active-duty personnel, reservists, veterans and eligible surviving spouses are able to qualify.
The VA doesn’t set loan limits for borrowers with full entitlement, which means VA borrowers can buy higher-priced homes. This gives military borrowers an edge over nonmilitary borrowers who may need complicated and pricey jumbo loans (mortgages that exceed conventional conforming limits) to buy homes in expensive parts of the country.
Current minimum mortgage requirements for VA loans
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.
See current VA loan rates today.
USDA mortgage requirements
Loans guaranteed by the U.S. Department of Agriculture (USDA loans) are designed to help low- to moderate-income borrowers buy homes in eligible rural areas with no down payment. Unlike FHA and conventional loans, there are no set loan limits. However, strict income, location and square footage limits typically result in maximum loan amounts well below current FHA and conforming loan limits.
Current minimum mortgage requirements for USDA loans
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.
Special minimum mortgage requirements for second homes and investment properties
If you’re looking for a second home, your only choice is conventional financing — FHA, VA and USDA loans can only be used for a primary home. There are also additional requirements if you’re buying an investment property.
Second home loan requirements
The following guidelines apply to second home purchases:
- You must live in the home for part of the year
- You can only purchase a one-unit home
- You must be able to live in the home year round
- The property can’t be managed by another company or used as a rental home
- You’ll need at least a 10% down payment
Investment property loan requirements
Conventional financing is your only option if you want to buy an investment property. To get an investment property loan, you’ll need:
- A minimum 20% down payment
- Proof of rental income
- An appraisal that analyzes the market rents for the home
- A minimum 640 credit score
- Cash reserves of two to six months’ worth of mortgage payments
Interested in using home equity to get another property? Read about second mortgages.
Multifamily home loan requirements
Buying a two- to four-unit home can be a quick way to earn multiple streams of rental income from a single property. However, you’ll need to spend more money upfront than you would for a single-family home.
To buy a multifamily property with a conventional loan, you’ll usually need:
- A minimum 5% down payment
- A minimum 680 credit score for a two-unit home
- A minimum 660 credit score for a three- to four-unit home
- A DTI ratio of 36% or less (though you may qualify with a DTI ratio up to 45% if you can meet a slightly stricter credit score minimum)
House hacking with a government-backed multifamily loan
If you don’t mind being a homeowner and landlord at the same time, at the same property, you may want to consider house hacking. This is when you buy a two- to four-unit home with a government-backed loan. As long as you live in one of the units, you can buy the property with as little as 0% down with a VA multifamily loan, or 3.5% down with an FHA loan.
FHA loans have an added perk: They allow you to use the rental income on the other units to qualify. The only drawback is you’ll need to have six months’ of cash reserves to qualify for a multiunit FHA purchase.
USDA loans offer another good option, as long as you live in a qualifying rural area. Known as multifamily housing direct loans, these loans require only a 3% to 5% down payment and don’t enforce a minimum credit score. There are some unique limitations, though — you’ll have to rent to low-income tenants, people with disabilities or seniors.
Key mortgage documents
If you plan to apply for a home loan in 2024, having the right documents upfront will lead to a smoother mortgage experience. Here’s a list of the most common items you’ll need:
Pay stubs for the last 30 days
W-2s for the last two years
Bank statements for the last 60 days
Federal tax returns for the last two years
Proof of homeowners insurance
1099 forms (if you’re self-employed or commissioned)
Documented dividends, stock earnings and other sources of income
Proof of bonus income
Pension statements
Securities documents, such as stocks, bonds and life insurance policies
Social Security or disability income award letters, if applicable
Specific forms required by FHA, VA or USDA-approved lenders
Gift letter (if any portion of your down payment is coming from a donor gift)
A fully signed purchase agreement
Which mortgage type is right for me?
If you’re thinking about buying a home in 2024, here’s a brief recap of which programs may be the best fit for your finances:
A conventional loan is a good fit if:
- You have at least a 620 credit score
- You can make a down payment between 3% and 20%
- You want a loan with mortgage insurance that you can get rid of as you build equity
An FHA loan makes sense if:
- You have credit scores between 500 and 619
- You have at least a 3.5% down payment and a 580 credit score
- You want to buy a two- to four-unit home with a 3.5% down payment
A VA loan may be the best choice if:
- You’re an eligible military borrower
- You can’t or don’t want to make a down payment
- You want to avoid mortgage insurance
A USDA loan is the best option if:
- You have a low to moderate income
- You’re buying in a USDA-designated rural neighborhood
- You don’t have the money for a down payment
