Mortgage
Minimum Mortgage Requirements in 2023
Written by Rene Bermudez | Edited by Crissinda Ponder | Updated November 3, 2023
A mortgage is a written agreement that gives a lender the right to take your home if you don’t repay the money they lend you at the terms you agreed on. Your mortgage payment is paid over a set number of years based on how much you borrow and the interest rate you’re approved for.
Here’s how a mortgage works:
Each month you pay principal and interest. The principal is the portion that’s paid down each month. The interest is the rate charged monthly by your lender. At first you pay more interest than principal. As time goes on, you pay more principal than interest until the balance is paid off.
Consumers often prefer 30-year fixed-rate mortgages because they offer the lowest stable payment for the life of the loan. Borrowers may also choose an adjustable-rate mortgage (ARM) for temporary savings over a three- to 10-year period, but after that, the rate typically changes each year.
You’re not stuck with your mortgage — you can pay it off and replace it with a mortgage refinance.
A mortgage refinance is the process of getting a new home loan to replace an existing one. Homeowners typically refinance for three reasons:
Today’s mortgage rates remain well above 7% and have been climbing steadily since the beginning of the year. Increasing interest rates are a result of both falling inflation and a robust labor market with low unemployment. Nonetheless, inflation remains high overall.
November’s mortgage rates forecast is for rates to remain relatively high in the short term — at least through the end of 2023, according to Jacob Channel, LendingTree’s senior economist.
The Federal Reserve chose not to raise the federal funds rate at its latest meeting in early November. Fed Chairman Jerome Powell offered a fairly positive take on where the economy stands, noting that we’ve seen both inflation and the labor market move in the right direction over the last three months. However, there may well be further hikes this year, he noted.
The Federal Reserve will have another opportunity to increase rates in December. If the Fed’s cycle of rate hikes did end there, it could help cool mortgage rates, Channel said. But no one knows for sure when that end will come.
You can find the best mortgage lenders online, by referral from a friend or family member or ask your real estate agent for a recommendation. To get the best rates for your mortgage, shop current mortgage rates with at least three different lenders.
Make sure you get quotes from mortgage brokers, mortgage bankers and your local bank. Rates change daily, so gather the quotes on the same day to ensure you’re comparing apples to apples figures. Get a mortgage rate lock once you find a home and keep track of the expiration date to avoid costly extension or relock fees.
Lenders set minimum mortgage requirements you’ll need to meet to get preapproved for a home loan.
The higher your credit score, the lower your interest rate will be
A lower interest rate means a lower monthly payment, which makes homeownership more affordable.
The higher your down payment, the lower your monthly payment
A down payment of 20% will help you avoid mortgage insurance if you’re taking out a conventional loan. Mortgage insurance covers the lender’s foreclosure costs if you default on your loan.
The longer the term, the lower your monthly payment
First-time homebuyers typically choose 30-year terms to get the lowest monthly payment.
The less monthly debt you have, the more you can borrow
Clear out those car loans, student loans and credit card balances if you want the most mortgage borrowing power.
The more you shop, the more likely you are to get a lower rate
A recent LendingTree study showed borrowers who shop multiple lenders can save thousands of dollars in interest charges over the life of their loans.
1. Your credit scores
You’ll need to get your credit score up to 620 or higher to qualify for a conventional loan. Keep your credit balances low and pay everything on time to avoid drops in your score. ⚠ If you can boost your score to 780, you’ll get the best interest rates possible with a conventional loan.2. Your debt compared to your income
Conventional lenders set a maximum 43% DTI ratio, but you may get an exception if you have lots of extra savings and a high credit score. Lenders divide your monthly income by your monthly debt (including your new mortgage payment) to determine your debt-to-income (DTI) ratio.3. Your income and employment history
A steady employment history for the last two years shows lenders you have the stability to afford a regular monthly payment. Keep copies of your paystubs, W-2 and federal tax returns handy – you’ll need them during the mortgage process.4. Your down payment and savings funds
The minimum down payment is 3% with a conventional loan, but it can pay to put down more if you’re able. If you’ve had rough patches in your credit history, mortgage reserves — which are just extra funds in the bank to cover mortgage payments — may mean the difference between a loan approval and denial. ⚠ You’ll snag the best conventional mortgage rate if you have a 780 credit score and a 25% down payment.Check your finances. Request a credit report with scores from all three major credit reporting bureaus: Equifax, Experian and TransUnion. Use a home affordability calculator to understand how much you might qualify for.
Choose the right type of mortgage. Do you need to focus on a low down payment mortgage program? Do you want to put 20% down to avoid mortgage insurance? Knowing your real estate and financial goals can help you choose the best mortgage for your needs.
Decide on your mortgage term. A 30-year, fixed-rate loan is the most popular choice for the lowest monthly payment. However, a shorter, 15-year fixed loan may save you thousands of dollars in interest charges, as long as your budget can handle the higher monthly payments.
Save, save, save. Besides saving for a down payment, you’ll need cash to cover your closing costs, which could range from 2% to 6%, depending on your loan amount. Boost your emergency savings to cover unexpected repair costs and maintenance expenses. Lenders may require you to have cash reserves that could allow you to continue paying your mortgage in case you lose your job or have a medical emergency.
Shop, shop, shop. LendingTree studies show that borrowers save money when they compare rates from at least three to five mortgage lenders. Give the same information to each lender so you’re comparing apples to apples when reviewing rate and fee quotes.
Get a mortgage preapproval before you house hunt. A preapproval letter confirms you can get a mortgage loan to shop for homes within a set price range. Home sellers are more likely to take you seriously as a buyer if you’ve been preapproved.
Make an offer on your dream home. Once you’ve found the perfect place, submit your best offer along with a copy of your preapproval letter. If your offer is accepted, you’ll also pay the required earnest money deposit to show your commitment to the transaction.
Get a home inspection. Once your offer is accepted, schedule a home inspection to identify any needed repairs or major issues. Once you negotiate repairs with the seller, your lender will typically order a home appraisal to verify the home’s market value.
Cooperate with the underwriter. Your lender’s underwriting team will ask for paperwork to verify all the information on your loan application. Be prompt in your responses to prevent delays. Once you receive final loan approval, a closing disclosure (CD) will be given to you at least three business days before your closing date. It will reflect the final costs of the transaction, including how much money you need to bring to the closing table.
Complete your final walk-through and closing. Before you head to the mortgage closing, walk through the property to double-check that all necessary repairs were completed and that the home is ready for you. At the closing, you’ll cut a check for your down payment and closing costs, sign the closing paperwork and receive the keys to your new home.
Once you’ve chosen a loan program, it’s time to start shopping around with some lenders. Compare mortgage interest rates from local lenders, banks, credit unions and online lenders. Ask family or friends for referrals, as well as your real estate agent. Try a rate comparison website, and lenders will contact you with competing offers, saving you the hassle of doing all the work yourself. You can also work with a mortgage broker who can shop on your behalf.
Once you’ve gathered the contact information for three to five lenders, follow these four shopping steps:
Request price quotes on the same day.
Ask the same questions of each lender, including:
How long is the rate quote good for?
What fees are charged upfront?
Is the rate fixed or adjustable?
What is the annual percentage rate (APR)?
Expect loan estimates from each lender within three business days of submitting your mortgage application.
Keep the estimates to compare rates and fees as you make your final choice.
With just three pieces of information — your income, other debt and loan type — you can use LendingTree’s home affordability calculator to figure out how much home you can afford. Experiment with different down payment amounts and loan terms to see how homebuying might affect your budget.
LendingTree updates mortgage rates daily so you can make the most informed decision. Rates are constantly changing, so make sure you lock in your interest rate once you’ve found the best quote.
A credit score of 740 or higher will typically get you the lowest rate offers. Lenders also tend to offer lower rates if you make a higher down payment on a single-family home compared to a two- to four-unit or manufactured home.