Summary: This article explains the basic requirements for a 30-year fixed-rate mortgage loan. It covers down payments, credit scores, debt ratios, and income requirements for 30-year home loans. It has been fully updated for 2017.
The 30-year fixed-rate mortgage loan is the most popular of all the mortgage financing options available to home buyers. This type of loan allows you to spread your payments over a longer period of time, thereby reducing the size of the payments. It also has a fixed interest rate that will never change for as long as you keep the loan.
Those are the benefits. But this article focuses on the borrower requirements for getting a 30-year fixed-rate home loan. So let’s talk about what it takes to qualify for a 30-year mortgage these days.
Qualification Requirements for a 30-Year Fixed Mortgage Loan
If you have a pretty good credit history, a manageable level of recurring debt, steady income, and a down payment of 3% or more — you might meet the minimum qualification requirements for a 30-year
fixed-rate mortgage loan. Let’s talk more about these basic requirements.
A consumer credit score is a three-digit number that’s based on information found within a person’s credit reports. Essentially, it “rates” you on how well you have borrowed and repaid money in the past. A high score suggests that a person is financially responsible and usually, or always, repays his or her debts. A lower score suggests the opposite. And there’s a broad spectrum in between.
The FICO credit scoring system is widely used by mortgage lenders these days. It ranges from 300 to 850, with higher being better.
Here’s the thing to know about credit scores. There isn’t a single cutoff point or requirement for getting a 30-year mortgage loan. It varies from one lender to the next. They can impose their own qualification requirements and criteria, based on their business models and risk-assessment practices.
With that being said, most lenders today look for a score of 600 or higher for borrowers seeking a mortgage loan. Again, this is not a hard-and-fast rule or requirement for getting a 30-year fixed-rate home loan. It’s more of an industry standard. So don’t be discouraged if your score falls a bit below that. Talk to a lender anyway to find out where you stand.
Your credit score also affects your mortgage rate. Generally speaking, a higher score will help you qualify for a better rate on your home loan. So it’s doubly important when applying for a 30-year fixed mortgage.
Your current debt level will also affect your ability to qualify for a 30-year home loan. But like the credit score, there is no single cutoff point or requirement for debt ratios. It can vary from one bank or mortgage company to the next.
When you apply for a home loan, the lender will determine your debt-to-income ratio. This is a percentage-based comparison between the amount of money you earn each month, and the amount you spend to cover your recurring debts (credit cards, car payments, mortgage payments, etc.).
Debt ratios help lenders ensure that you’re not taking on too much additional debt by getting a mortgage loan. While there is no standardized requirement for 30-year mortgage loan approval, most lenders today set the bar at around 43% (and here’s why).
This means that if your total monthly debt — including the mortgage payment — uses up more than 43% of your monthly income, you could have trouble qualifying for a 30-year fixed-rate mortgage.
But again, this number is not set in stone. Like many mortgage requirements and criteria, exceptions can be made in the debt-to-income department. For example, borrowers with excellent credit, significant cash reserves, or a long history of making mortgage payments on time are often allowed to exceed the
43% debt threshold. Remember, 30-year mortgage loan requirements can vary from one lender to the next.
Income Requirements for 30-Year Loans
There is no standardized income requirement for getting a 30-year fixed-rate mortgage loan. (Are you noticing the pattern here?) But mortgage lenders will measure your income against your current and future debt load, as described in the previous section.
Federal guidelines strongly encourage mortgage lenders to verify and document a borrower’s ability to repay a home loan. This is referred to as the ability-to-repay rule (a.k.a., common sense). Your lender will examine your income situation, along with your debts, to make sure you have the financial capacity to repay the mortgage loan. That’s what is most important to them.
Minimum Down Payments
These days, the minimum down payment requirement for a 30-year fixed-rate mortgage loan is 3%. We haven’t seen or heard of any lenders going below that for a conventional 30-year loan (thought it may be happening without our knowledge).
VA loans, on the other hand, offer 100% financing with no down payment whatsoever. So if you’re a military member or veteran, you should seriously consider using the VA mortgage guarantee program. It’s hard to beat 100% financing.
Additionally, USDA loans with 100% financing are available to borrowers in rural areas who meet certain income requirements.
But for a “plain-old” conventional 30-year fixed mortgage, the down payment requirement is usually set at 3% or higher.
Disclaimer: The criteria mentioned in this article were based on industry trends in 2017. Lending standards can change over time, and they can also vary from one mortgage company to the next. This article provides a basic overview of 30-year home loan requirements. None of this is written in stone, and exceptions are often made in many of these categories. In other words, don’t take this as gospel. Talk to a lender to see where you stand!
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author