Requirements to buy a house: 6 Rules for first-time buyers

November 21, 2022 - 10 min read

What do you need to buy a house?

If you want to buy a house, you need to meet basic requirements for credit score, income, and employment history as well saving for a down payment. Exact guidelines will vary depending on the type of home loan you use.

The good news is, requirements to buy a house are more lenient than many first-time home buyers expect. Lenders can often be flexible when it comes to things like credit and down payment. Here’s what you’ll need to qualify.

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Six basic requirements to buy a house

Unless you can pay cash, you’ll need a mortgage loan to finance your new home purchase. The mortgage process may seem overwhelming at first, but meeting your loan’s requirements shouldn’t be too hard.

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Here’s what you’ll need:

  1. The right credit score: Your FICO score should meet minimum credit score requirements, which range from 580 to 620 depending on the loan type
  2. A steady income: Your earnings for the past two years will show you can afford monthly mortgage payments
  3. Enough savings: You’ll need enough money for the minimum down payment and pay closing costs, though it’s possible to get some help with this
  4. A modest debt-to-income ratio (DTI): Lenders will check your existing debts to make sure you could afford to add your new mortgage payment amount each month
  5. Documentation: You’ll need to document your income, debts, and savings by sharing the right financial documents with your loan officer
  6. A preapproval: A mortgage preapproval puts all these pieces together so you can see whether a loan is the best mortgage for you

Some of these requirements will vary based on the type of mortgage you choose. So let’s look more closely at each requirement.

1. Credit score requirements to buy a house

Believe it or not, you don’t need excellent credit to get a mortgage. Different homebuyer programs have different credit requirements, and sometimes you can qualify with a credit score as low as 580. Keep in mind that a lower credit score often means paying a higher mortgage rate.

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Here are the minimum credit requirements to buy a house:

  • Conventional home loan: Minimum credit score of 620
  • FHA home loan: Minimum credit score of 580, although some lenders might allow a score as low as 500 with 10% down
  • USDA home loan: Minimum credit score of 640
  • VA home loan: Most lenders require 580-620

To be clear, just because you can qualify for a mortgage with a low score, doesn’t necessarily mean you will. Lenders take more than your score into consideration. They’ll also review your credit reports, paying close attention to your most recent credit history.

“If you’re interested in bumping up your credit score, your lender may have the ability to help,” recommends Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

What if I have no credit history at all?

Even though lenders will look at your credit history and credit score, it’s possible to get a mortgage with no credit history.

Some loan programs, such as FHA, VA, and USDA, allow the use of non-traditional credit on a mortgage application. You could establish creditworthiness through things like utility payments, rent payments, insurance payments, and cellphone payments. Although, mortgage rates tend to be significantly higher for these types of special considerations.

Even some conventional lenders might accept a 12-month history of rent and utility payments in lieu of a credit history, though this is very rare.

What if I have bad credit or a bankruptcy?

To qualify for a mortgage loan — even with a low credit score — you typically can’t have any defaulted loans or late payments on your credit report within the past 12 months. This isn’t a hard-and-fast rule, though. You might still qualify with one or two late payments during the past 12 months, but only if the lender accepts your explanation for lateness.

Also, there’s typically a waiting period for getting a mortgage after bankruptcy or foreclosure. These waiting periods vary by home loan program. For example:

  • Conventional loan: You must wait four years from your discharge date after a Chapter 7 or 11 bankruptcy, and two years after a Chapter 13. The typical waiting period after a foreclosure is seven years, or three years if you have extenuating circumstances
  • FHA loan: You must wait two years from your discharge date after a Chapter 7, and one year after a Chapter 13. There’s no waiting period after a Chapter 11 bankruptcy. You must wait three years after a foreclosure
  • VA loan: You must wait two years from your discharge date after a Chapter 7, and one year after a Chapter 13. There’s no waiting period after Chapter 11. After a foreclosure, the waiting period is two years

2. Income and employment requirements to buy a house

Before approving your mortgage, the lender must confirm that your income could support a mortgage payment. For this reason, most lenders need to see 24 months of consecutive employment before you apply for a home loan.

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This applies to self-employed mortgage borrowers, too, in which case you’ll provide your business and personal tax returns for the previous two years. Tax returns must show consistent income over the previous 24 months, either remaining roughly the same or increasing.

There’s no minimum income to get a mortgage, but some loan programs have a maximum income limit.

Since a self-employed borrower’s income can fluctuate from year to year, mortgage lenders often average out their income over a two-year period, and then use this figure for qualifying purposes.

Be mindful, too, of possible income requirements for the type of loan you want. There’s typically no minimum income requirement, but you can earn too much money for some first-time home buyer programs.

With USDA, for example, your total household income must be at or below 115% of the median household income for the area. And if applying for Fannie Mae‘s HomeReady or Freddie Mac‘s Home Possible, your income must not exceed the limit set for your area.

3. Enough savings for the down payment and closing costs

Most home buyers are required to make at least a small down payment on their home loans. Minimum down payment requirements are as follows:

  • Conventional loan: 3%
  • FHA loan: 3.5%
  • VA loan: Zero down
  • USDA loan: Zero down
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With a conventional loan, you can expect to pay a minimum down payment between 3% and 5% of the purchase price. The minimum on an FHA loan, backed by the Federal Housing Administration, is 3.5%. USDA and VA home loans do not have minimum down payment requirements. (That means you can buy a house with $0 down if you qualify.)

These days 20% down isn’t required. But some borrowers choose to put 20% down to avoid the monthly cost of private mortgage insurance (PMI).

Closing costs

Your down payment isn’t the only upfront cost when you buy a house. You’re also responsible for closing costs. These cover the lender’s fees and charges for professional services, such as the title insurance and home appraisal.

The seller might agree to pay some of your closing costs. And some mortgage lenders will give a credit to cover a borrower’s closing costs in exchange for a higher mortgage rate. But on average, expect your closing costs to be an additional 2% to 5% of the loan amount.

That means if you’re making a low down payment of 3%, the total amount of money you need to save will be more like 5% to 8% of the home value when upfront fees are added in.

Closing cost and down payment assistance

If you’re having trouble saving money, you might qualify for a down payment assistance program. These programs provide funds in the form of grants or loans, which you can use to pay your down payment and/or closing costs.

Some down payment assistance programs have household income limits. But many are lenient, and they’re meant to make the home buying process more affordable — especially for first-time buyers.

4. Debt-to-income requirements to buy a house

Your existing debts will help determine how much money you can borrow to buy a house. High monthly debts (such as credit card debt, student loans, and other installment loans) could prevent mortgage approval. Low monthly debts, on the other hand, can help you afford a more expensive home.

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Your mortgage lender will calculate your debt-to-income ratio (DTI) to determine the maximum size of your loan. DTI measures how much of your gross monthly income you spend on debt. Lenders look at the money left over after your regular debts are paid to see how much you can afford for a monthly mortgage payment.

Maximum DTI varies by loan type

An ideal DTI for different mortgage programs is as follows:

  • Conventional loan: 36-43%
  • FHA loan: 43%
  • USDA loan: 41%
  • VA loan: 41%

Some lenders allow higher ratios, though, if you have “compensating factors.” These include an excellent credit score, a large down payment, or high cash reserves. Ideally, the mortgage payment on your new home shouldn’t exceed 28% to 31% of your gross monthly income.

Note that your other homeownership costs — like homeowners insurance premiums and property taxes — will be included in your debt-to-income ratio. A good mortgage calculator will help you estimate these costs to find your “real” eligibility.

5. Documentation needed to buy a house

Buying a home also requires supplying your lender with documentation. Along with giving authorization for the lender to check your credit history, you’ll need to provide the following list of documents:

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  • Recent pay stubs
  • Tax returns and W-2s or 1099s for the previous two years
  • Employment verification letter
  • Bank statements and information about other assets
  • Photo ID
  • Rental history
  • Year-to-date profit and loss statement, if you’re self-employed

Depending on your circumstances, you might provide other documentation, too. For example, if a family member will give you money for your down payment and closing costs, you must include a gift letter. This provides information about the donor and the amount of their gift. And if you’re using alimony or child support payments for qualifying purposes, you’ll provide copies of the court order.

Gathering these documents before you apply can help the process go more quickly. But, if you’re not sure what you’ll need, don’t worry — your mortgage broker or loan officer will walk you through the process step by step.

6. Get mortgage preapproval

Looking at the general requirements to buy a house can help you determine if you might qualify based on your finances. You can also use a mortgage affordability calculator to ballpark your home price range. But a mortgage lender still gets the final say.

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When you’re serious about buying your dream home, the first step is to ask a lender for mortgage preapproval.

Some home buyers make the mistake of house hunting before meeting with a lender. But with a preapproval, you’ll know what homes you can afford before starting the process. That way you’ll look only at houses within your price range.

Plus, a preapproval letter shows sellers and real estate agents you’re a serious buyer. You typically need one in hand to make an offer.

When getting preapproved for a mortgage, you should contact at least three mortgage lenders to compare interest rates and terms. Home buyers can often lower their monthly payments and save thousands just by shopping around for lower rates.

Requirements to buy a house: FAQ

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What do you need to buy a house?

To buy a house, you’ll need a qualifying credit score and debt-to-income ratio, proof of income and employment, and enough cash to cover the down payment and closing costs. Specific qualifying requirements will vary depending on your loan program and mortgage lender.

How long does it take to buy a house?

It typically takes about 30-60 days to buy a house once you’re under contract. However, shopping for your new home and getting an offer accepted can take months. The amount of time it takes you to buy a house will depend on how long you look for a home, plus time spent closing on the mortgage loan.

Do you need a mortgage to buy a house?

You can buy a house without a mortgage. But you’ll need enough cash to cover the entire purchase price upfront. Other options for buying a house without a mortgage include seller financing, rent-to-own programs, and private loans. But these types of alternative financing are often riskier and come with higher interest rates than standard mortgage loans.

How much money do you need to buy a house?

To buy a house, you’ll need enough money to cover the down payment and closing costs. These add up to at least 5 to 8 percent of the home’s purchase price. For example, if you’re purchasing a $300,000 home, plan on budgeting a minimum of $15,000 to $24,000. However, you may need as much as 22 to 25 percent if you want to avoid private mortgage insurance on a conventional loan.

Are you ready to get started?

Once you can meet the requirements to buy a house, it’s time to start your home-buying process. First, decide on a real estate agent or Realtor who will help you put an offer on your dream home. If it’s accepted, you’ll schedule a home inspection, get mortgage approved, and do a final walk-through before getting the keys to your new home.

Start by checking your current home buying eligibility and comparing rate quotes from multiple lenders.

Time to make a move? Let us find the right mortgage for you

Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.