Rules for Qualifying for a Mortgage

Many married couples share the dream of buying their first home together. However, few couples can afford to buy real estate without the help of a mortgage. To qualify for a mortgage, you must meet the lender's guidelines, which typically vary based on the type of mortgage you are requesting.

Types of Mortgages

Three main types of mortgages are available: conventional, FHA and VA. Conventional mortgages are the most common. Most lenders sell their conventional mortgages to Fannie Mae or Freddie Mac, so the requirements for a conventional mortgage usually comply with Fannie Mae/Freddie Mac regulations. FHA mortgages are insured by the Federal Housing Administration, which also determines the qualifications for these loans. VA loans are insured by the Veterans Administration and available only to those with ties to the military.

Credit Guidelines

When you apply for a mortgage, the lender examines your credit history to determine whether you are a good risk. To qualify for a conventional mortgage, you must have a credit score of at least 620. You can qualify for an FHA mortgage with a credit score of only 500. The VA publishes no minimum credit score for its loans. However, the VA will examine your last 12 months of credit history before approving the loan.

Debt-to-Income Ratio

Debt-to-income ratio is defined as the ratio of your revolving monthly debts to gross monthly income. Lenders are interested in two different debt-to-income ratios: the front ratio and the back ratio. Your front ratio is the percentage of monthly income that pays your mortgage, while your back ratio is the percentage required to pay all of your revolving debts. Conventional loans require a front ratio of 28 percent or less and a back ratio of 45 percent or less. FHA loans require a front ratio of no more than 31 percent and a back ratio of no more than 43 percent. VA loans require that neither ratio exceeds 41 percent.

Down Payment

To obtain a conventional mortgage, you must supply a down payment equal to at least 5 percent of your home's purchase price. However, you can qualify for an FHA loan with a down payment of only 3.5 percent of the purchase price. No minimum down payment is required for VA loans.

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