Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure

Lending criteria for home loans

Find out the approval policies banks have in place to determine if you qualify.

When it comes time to take that next step in your home-buying journey, you’ll want to have a feel for the criteria that lenders use to assess mortgage applications. Planning ahead can help you pick the right lender and get approved with a competitive interest rate.

To determine your eligibility and what rate you might qualify for, lenders look at your living and employment situation, your financials, your credit history — among other factors.

Your borrower profile

Before you go any further in the process, lenders will first need a general feel for who you are and your current situation in general. They’ll assess:

Your residency

A lender will want to know if you’re a permanent resident of the US. While nonresidents can still get mortgages with some lenders, it will be more difficult to get approved.

Your situation

Lender want to know if you’re borrowing as an individual or jointly. If, for example, you’re taking out a home loan as a company or as the trustee, lenders require specific documentation and are likely to set different lending criteria.

Your employment situation

Your loan officer examines your work situation to determine you have a steady source of income. The way your income is assessed depends on your type of employment.

Full-time employees

If you’re a full-time employee — meaning you receive a regular paycheck with tax withheld — you should have a relatively easy time proving your income. However, there are a few things lenders will scrutinize:

  • Length of employment. Lenders may require that you’ve been employed in the same job for a certain length of time. This is typically two years, but varies from lender to lender.
  • Type of employment. Lenders want to know if you’re a permanent, seasonal or contract employee. If you’re a seasonal or contract employee, you’ll need to prove your ability to repay the loan when the season or contract ends.

Part-time employees

If you work part-time, the process for proving your income will be just like a full-time employee. But you’ll need to be able to prove that you can make enough to repay the loan without working full-time.

Self-employed borrowers

If you’re self-employed, you won’t have regular pay stubs to show a lender. Most lenders require you to show bank statements, prior tax returns and any financial documents from your business.

Your financial position

The next thing lenders will want is a detailed view of your financial history, habits and overall health. To get that, they’ll look at a few different factors:


This includes money in savings accounts, investments, other properties and any other saved money. You’ll typically need to provide bank statements for the last two months.


Your liabilities include any debts including credit cards, personal loans, car loans or student loans. Your debt-to-income (DTI) ratio is one of the biggest determining factors in qualifying for a mortgage. Lenders typically look for a front-end DTI ratio of 28% or lower and a back-end DTI ratio of 36% or lower — though guidelines vary from lender to lender

What are front-end and back-end DTI ratios?

Lenders typically take both ratios into consideration, though your back-end ratio is likely to carry more weight in the approval process:

  • Front-end DTI ratio. This includes all expenses directly related to your home, such as property taxes, insurance and the payments you’ll make on the home you’re trying to buy. Those expenses are tallied up by the lender, then divided by your gross monthly income.
  • Back-end DTI ratio. The back-end ratio includes any debts that are likely to show up on your credit report. This can include revolving debts like car loans, credit cards and student or personal loans.

Income and proof of employment

Aside from your work income, lenders want information about any other income streams you have. This can include income from Social Security, rentals, investments, alimony and any other regular source of money. To verify your income and employment, lenders may request documents such as:

  • W-2 forms, typically for the last two years
  • Tax returns, typically for the last two years — more likely to be requested if you’re self-employed
  • Pay stubs, typically for the last two months

Credit score

Lenders look at your debt repayment history to make sure you consistently pay debts on time. They’ll also assess things like your credit utilization and whether or not you’ve had any bankruptcies. Typically lenders like to see a credit score of at least 620, but the score you need depends on the type of mortgage you’re applying for.

Down payment

How much you need for a down payment depends on your credit history, income and the type of loan you’re getting. If you have less than a 20% down payment, you’ll have to pay private mortgage insurance (PMI) — an insurance policy that covers your lender in the event you default.

The amount you’re borrowing

The type of home loan and the size of the loan amount also affect your chances of being approved.

  • The amount you wish to borrow must not exceed the lender’s maximum loan-to-value ratio.
  • Your proposed borrowing amount must fit between the minimum and maximum loan limits set by the lender
  • You must use the financing from the loan for its intended purpose. For example, you can’t get a mortgage for a primary residence if you plan to use the property as an investment and won’t be living there.

The property you’re buying

Next, lenders will want to know your occupancy status. In other words, they’ll assess whether the house will be your primary residence, secondary residence or an investment property. Banks assess the type of property you’re considering based on:

  • Location. Some lenders have restrictions on which zip codes they will lend in. Make sure your lender of choice can provide assistance in your area.
  • Structure. Your lender will want to know if you’re buying a house, condo or other type of structure.
  • Size. This can include both the size of the home and the size of the land it’s on.
  • Value. The lender has your property appraised at your expense. If you’re trying to buy a home for significantly more than it’s worth, you’ll have trouble finding a lender.
  • Use. If you’re buying a rural property, for instance, it can’t be used for farming if your mortgage is for a primary residence.
  • Purpose. If the house is a second residence, for instance, your credit score and down payment requirements are likely to be higher than they would for a primary residence. Check with your lender and understand the differences.

Reason for purchase

Lastly, a lender will want to know why you’re purchasing the property. The reason you’re buying your property will dictate the type of loan you’re eligible for, and often the amount you can borrow.

  • To live in. If you’re buying as an owner-occupier, you’re likely to face fewer restrictions and get offered a home loan with a lower interest rate.
  • As an investment. Investors may face tighter lending criteria and are often saddled with higher interest rates.

Compare mortgage lenders

Compare top brands by home loan type, state availability and credit score. Select See rates to provide the lender with basic property and financial details for personalized rates.

1 - 9 of 9
Name Product Loan products offered State availability Min. credit score
(NMLS #7872)
Freedom Mortgage
(NMLS #2767)
Freedom Mortgage
Conventional, Jumbo, FHA, VA, USDA, Refinance
Available in all states
A lender that excels in FHA and VA loans, offering low down payment options to borrowers.
Rocket Mortgage
(NMLS #3030)
Rocket Mortgage
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
Streamline your mortgage from quote to final payment — all from your computer or phone.
(NMLS #1168)
Conventional, Jumbo, FHA, VA, USDA, Refinance
Not available in: NY
Great customer reviews and customized rate quotes in three minutes with no SSN needed.
Veterans United
(NMLS #1907)
Veterans United
Conventional, FHA, VA, USDA, Jumbo, Refinance
Available in all states
Veterans United stands out from other lenders for its focus on serving the military community.
(NMLS #1121636)
Conventional, Jumbo, Home equity, Refinance
Not available in: HI
No hidden fees, multiple loan terms, and member discounts available.
Guaranteed Rate
(NMLS #2610)
Guaranteed Rate
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
Find competitive rates and highly-rated customer service with this lender.
(NMLS #1429243)
Conventional, Jumbo
Not available in: AZ, HI, MA, MO, NV, UT
Preapproval in minutes and closing in as little as 3 weeks with no origination fees.
(NMLS #1136)
HELOC, Home Equity loans
Available in all states
Connect with vetted lenders quickly through this free online marketplace.

Compare up to 4 providers

Bottom line

A lender considers your full financial status and history when determining how much you’re eligible to borrow for a home. To get the best deal on a mortgage for your dream house, compare home loan lenders and get preapproved before you start house hunting.

Frequently asked questions

More guides on Finder

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site