What do You Actually Need to Get a Mortgage?

Find out what you actually need to get a mortgage.
Photo Copyright : Fabio Balbi / 123rf.com

Do you know what the requirements are for obtaining a mortgage? Do you qualify for a home in your desired neighborhood? 

If you answered “no” to the first question, you may not realize that the answer to the second is likely “yes.”

The Federal National Mortgage Association, commonly known as Fannie Mae, recently released some research you may want to read. The study tracked changes in misconceptions of mortgage requirements from their initial 2015 survey. The new results revealed that Americans are still misinformed about what is required to qualify for a mortgage when purchasing a home. 

Learn more about common mortgage misconceptions below. And keep reading to find out what you actually need to get a mortgage.


What are 3 Common Misconceptions about Getting a Mortgage?

According to Fannie Mae, “consumers broadly lack an understanding of the basic thresholds to qualify for a mortgage, including down payment, debt-to-income ratio, and credit score requirements.”

Here are three takeaways:

  • 53% of Americans don’t know what minimum FICO score lenders require for a mortgage.
  • 40% of Americans don’t know the minimum down payment required.
  • 61% of Americans don’t know the debt-to-income (DTI) proportion lenders don’t want total debt payments to exceed.

While the first two figures have remained steady since the last study, the misconception about DTI has increased two percentage points in the last few years. From these numbers, it is clear that misconceptions about mortgage qualifications abound. And those misconceptions may be holding people back from preparing to buy a home.


What do You Actually Need to Get a Mortgage?

Let’s close that gap, then. 

To help correct these misunderstandings, let’s take a look at the latest Ellie Mae Origination Insight Report, which focuses on recently closed (approved) loans. That report will tell us exactly what you need for your next home purchase, including down payment, debt-to-income ratio, and credit score requirements.

What FICO Score do You Need to Get a Mortgage?

The median minimum FICO score lenders require for a mortgage is 580. The average FICO score among all closed loans in January 2020 was 738, up 14 points from a year earlier. But in rare cases, home buyers with scores in the 500–549 range have still obtained a mortgage. This is more common when refinancing or securing an FHA loan. Here is how those scores were distributed for purchase loans:

What is the Minimum Down Payment Required to Get a Mortgage?

The median minimum down payment lenders require for a mortgage is 3%. In Fannie Mae’s study, when asked for the minimum percentage they would feel comfortable paying as a down payment, owners were much more conservative than renters. While renters would feel comfortable putting down 10%, current owners would want to make a down payment of 20%. Both renters and owners also expected lenders to want that 20% down payment—but they overestimated lenders by nearly seven fold!

What DTI do You Need to Get a Mortgage?

First, here’s a quick explanation of DTI: Your debt income ratio, debt-to-income ratio, or DTI is the percentage of your monthly gross income that goes toward paying debts. There are two kinds of DTI: front-end and back-end. The front-end DTI ratio reflects the percentage of your income that goes to housing costs. The back-end DTI ratio indicates what you pay toward all recurring debt payments, including those covered by the first DTI. Other debts included in the back-end can include monthly payments toward credit cards, car loans, student loans, child support, alimony, and legal judgments. The front-end versus back-end percentages are expressed using the notation x/y.

According to Fannie Mae, the DTI proportion the median number of lenders don’t want total debt payments to exceed is 50%. That means, with your requested mortgage, you shouldn’t spend more than 50% of your income on housing, loans, and other monthly payments. According to Ellie Mae, the average DTI on all closed loans in January 2020 was 24/37, a slightly lower rate than the 26/39 average DTI one year ago.

What’s the Bottom Line?

When it comes to buying a home, there are few hard and fast lines in the sand. And where there are, they are likely to be further away from your individual situation than you may think. 

Don’t let misconceptions keep you from preparing for buying a house. Whether buying your first home or moving up to your dream home, knowing your options will definitely make the mortgage process easier. Your dream home may already be within your reach.


Ready to Get a Mortgage? We can Help!

At Beverly-Hanks Mortgage Services, we strive to make financing real estate easy and enjoyable. That is why we are staffed with local financing professionals dedicated to prompt, personal service. We offer a broad menu of financing options, very competitive rates, and customer service that is second to none.

Find out exactly what you need to get a mortgage. Make a mortgage inquiry today!

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