The mortgage is the largest loan most people will ever take — and small differences in approach translate to tens of thousands of dollars over the life of the loan. This guide covers what lenders actually require, the real differences between loan types, and how to position for approval.
Quick take: Mortgage approval hinges on four pillars: credit score, debt-to-income ratio, down payment, and documented income. Weakness in one can be offset by strength in another — within limits.
The five major mortgage types
- Conventional loans — not backed by government, follow Fannie Mae / Freddie Mac guidelines. Typically require 620+ credit, 3–20% down.
- FHA loans — backed by Federal Housing Administration. 580 credit with 3.5% down (or 500 with 10% down). Requires mortgage insurance.
- VA loans — for active-duty military, veterans, and some spouses. No down payment required, no PMI. Arguably the best deal in U.S. lending.
- USDA loans — for rural and some suburban properties. Zero down, income limits apply.
- Jumbo loans — for amounts above the conforming limit (currently $806,500 in most counties, higher in high-cost areas). Stricter credit and DTI requirements.
What lenders actually require
| Requirement | Conventional | FHA | VA |
|---|
| Min. Credit Score | 620 | 580 (500 w/ 10% down) | No set minimum (580+ practical) |
| Min. Down Payment | 3% (first-time), 5% typical | 3.5% | 0% |
| Max DTI | 45–50% | Up to 56.9% with compensating factors | No hard cap (41% guideline) |
| Mortgage Insurance | PMI if <20% down, cancellable | MIP required (often for life of loan) | None (funding fee instead) |
The 28/36 rule
Traditional underwriting uses two ratios:
- Front-end ratio (28%): Your total housing payment (principal, interest, taxes, insurance) should not exceed 28% of gross monthly income.
- Back-end ratio (36%, or up to 50% with flexibility): All monthly debt payments combined should not exceed 36% of gross income under traditional guidelines.
Modern lenders flex these ratios based on credit, reserves, and down payment — but they remain the starting point.
Pre-qualification vs. pre-approval vs. underwritten approval
These terms are often used interchangeably, but they're different:
- Pre-qualification — informal, often a soft-pull estimate based on your stated numbers. Essentially a guess.
- Pre-approval — formal conditional approval after the lender pulls credit and reviews income. A real offer in most cases, but still conditional on the property and updated documentation.
- Underwritten pre-approval (TBD approval) — the gold standard. Full underwriting complete except for the property. Makes your offer near-as-strong as cash.
Our full pre-qualification vs. pre-approval guide covers this in detail.
The biggest approval killers
- Changing jobs mid-application. Don't. Even a promotion with a raise can derail underwriting.
- Opening new credit. Don't apply for a credit card, car loan, or furniture financing between pre-approval and closing.
- Large, undocumented deposits. Gifts need gift letters. Cash deposits need sourcing. Underwriters scrutinize 60–90 days of bank activity.
- Self-employed income volatility. Lenders average your last 2 years of net income — a bad year hurts disproportionately.
- Ignoring your DTI until it's too late. Run your numbers using our DTI calculator before you start shopping.
Down payment reality check
The "20% down" rule is a myth for most buyers. The median first-time buyer in the U.S. puts down around 6–8%. Lower down payments are fine — but understand the tradeoffs:
- Under 20% down on a conventional loan means PMI (private mortgage insurance), typically 0.3–1.5% of the loan amount per year.
- PMI is cancellable on conventional loans when you reach 20% equity. FHA mortgage insurance, in most cases, is not.
- A smaller down payment means a larger loan, which means more interest paid over 30 years.
Before you apply
- Pull all three credit reports and all three FICO scores. Mortgage lenders use the middle score of all three — or the lower middle score of two borrowers.
- Run your DTI with the projected mortgage payment included.
- Get a realistic sense of closing costs: typically 2–5% of the loan amount on top of your down payment.
- Get fully pre-approved (not just pre-qualified) before making an offer.
- Shop at least 3 lenders. The CFPB estimates borrowers who shop save an average of $1,500 over the life of the loan.
Last reviewed: January 2026 · Requirements reflect current guidelines and may change.