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Minimum Mortgage Requirements in 2022
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Knowing the minimum mortgage requirements can help you choose the best loan program for you if you’re planning to buy a home. Higher loan limits in 2022 will give more borrowing power to homebuyers who are qualifying for a mortgage. Some changes are ahead, however, as lenders adjust to the changing market conditions stemming from rising interest rates and home prices.
2022 minimum mortgage requirements by loan type
Mortgage rates and home prices are expected to rise in 2022, but mortgage requirements will remain largely the same. One big change for 2022 homebuyers: Conforming loan limits will rise by the biggest year-over-year dollar amount on record since 1970.
Below is a snapshot of the new loan limits, along with the basic mortgage requirements:
Minimum mortgage requirements by loan type
|Down payment||3%||3.5% with 580 score 10% with 500-579 score||0%||0%|
|Credit score||620||580 with 3.5% down 500-579 with 10% down||No minimum, but 620 is lender standard||No minimum, but 640 is lender standard|
|Mortgage insurance or similar fees||PMI 0.15% to 1.95%||UFMIP 1.75% Annual MIP 0.45% to 1.05%||0.5% to 3.6% VA funding fee||Upfront guarantee fee 1% Annual guarantee fee 0.35%|
|DTI ratio||45% back-end ratio*||31% front-end DTI ratio* 43% back-end DTI ratio *||41% back-end ratio*||29% front-end ratio* 41% back-end ratio*|
|Loan limits for single-family home||$647,200 in low-cost areas||$420,680 in low-cost areas||N/A||N/A|
*Some exceptions may be made for borrowers with higher DTI ratios who also have ample cash reserves, residual income or other mitigating circumstances
Conventional mortgage requirements
Homebuyers qualifying for a mortgage for a higher-priced home can borrow more, with 2022 conforming loan limits increasing to $647,200 for most parts of the country. Here are the current minimum conventional home loan requirements:
Current minimum mortgage requirements for conventional loans
- Down payment. The minimum down payment is 3% for conventional loans. The funds can come from your own money or a gift from a family member.
- Mortgage insurance. Conventional loans with less than 20% down require private mortgage insurance (PMI) to protect lenders if you default. The higher your down payment and credit score, the lower your PMI will be. You’ll typically pay between 0.15% and 1.95% of your loan amount in annual PMI premiums, which are normally paid as part of your monthly payment; however, PMI can be paid upfront in a lump sum at closing.
- Credit score. The minimum credit score for a conventional mortgage is 620. Higher scores get you the best mortgage rates and lower PMI premiums.
- Employment. Lenders typically require proof of steady income, focusing on the past two years of employment history.
- Self-employment. Fannie Mae and Freddie Mac usually require two years worth of personal and business federal tax returns, plus a year-to-date accounting of income you’ve received from your company’s activities.
- Income. Most conventional loans don’t have income limits, with the exception of Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® (covered below). Borrower incomes for these programs must fall within set limits for their area.
- Debt-to-income ratio. Your debt-to-income (DTI) ratio is measured by dividing your total debt by your gross monthly income. Conventional lenders prefer a DTI of 45% or less, but may bump it to 50% with higher credit scores and additional mortgage reserves.
- Cash reserves. Also called mortgage reserves, these are funds you’ll need in addition to your down payment and closing costs to prove you can pay several months of mortgage payments in an emergency. Up to six months of cash reserves may be required depending on your credit scores, DTI ratio, down payment and if you’re buying a two- to four-unit home.
- Occupancy. Borrowers can purchase a home used as a primary residence, second home (commonly called a vacation home) or rental property.
- Property types. Conventional mortgage requirements allow you to finance a one- to four-unit home located in a regular subdivision, condominium project, co-op project or planned unit development (PUD). Conventional loans can also be used to buy manufactured homes attached to a permanent foundation.
- Home appraisals. An appraisal is needed to meet conventional loan requirements for an unbiased opinion of a home’s value from a licensed property appraiser. However, some borrowers making a 20% down payment or more on a one-unit home may be eligible for a property inspection waiver (PIW), and can skip a home appraisal.
Current minimum mortgage requirements for HomeReady and Home Possible Loans
The mortgage loan requirements for these conventional low-down-payment programs include income limits. Both Fannie Mae and Freddie Mac provide online lookup tools you can use to determine the maximum income based on an address you enter:
- For Fannie Mae HomeReady loans, use the Area Median Income Lookup Tool
- For Freddie Mac Home Possible loans, use the Income and Property Eligibility Tool
Both programs have extra qualifying features such as:
Homebuyer education. HomeReady and Home Possible borrowers must complete a homebuyer education course before closing. One change in 2022: Homebuyers applying for the HomeReady program won’t be required to use Fannie Mae’s homebuyer education program.
No credit score option. Homebuyers without a credit score can prove their creditworthiness with alternative data. For example, lenders may accept 12 months of consecutive, on-time rent payments, along with utility bills and car insurance payments, to prove your history of paying bills on time.
Additional income from a boarder. You can add rental income received from someone who has lived with you for at least 12 months to help qualify for a HomeReady loan. You’ll need proof the person has lived with you for a full year.
Freddie Mac Home Possible only
Alternative down payment sources. Home Possible guidelines allow for the entire down payment to come from sweat equity, which means you can convert your DIY skills — rehabbing a home that needs improvements — into cash toward your down payment and closing costs.
FHA mortgage requirements
There’s good news for borrowers struggling to qualify for a mortgage to buy a more expensive home in 2022: FHA loan limits increased to $420,680 for most parts of the country. Higher-cost areas get even more bang for the buck, with maximum loan amounts as high as $970,800.
Current minimum mortgage requirements for FHA loans
- Down payment. FHA loans require a 3.5% down payment with a 580 or higher credit score, and funds can come from employers, close friends, family members or charitable organizations. The down payment requirement jumps to 10% with a credit score of 500 to 579.
- Mortgage insurance. FHA borrowers are required to pay two types of FHA mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, typically financed into the mortgage. The second is the annual mortgage insurance premium (MIP) that ranges from 0.45% to 1.05% of the loan amount, and is divided by 12 and added to your monthly payment.
- Credit score. You can have a credit score as low as 500 up to 579 with a 10% down payment. Homebuyers making a minimum 3.5% down payment will need a score of at least 580.
- Employment. FHA loan income requirements look at the borrower’s stability of income and employment for the past two years. Job-hoppers will need to explain changes or gaps in employment.
- Income. There are no income limits for FHA loans.
- DTI ratio. For FHA loans, the front-end DTI ratio max is 31%, while the back-end DTI ratio is capped at 43%. The front-end ratio primarily considers your mortgage PITI payment (principal, interest, taxes and insurance). The back-end ratio looks at your mortgage payment, plus all other revolving monthly debt, including car loans, credit card payments and other loans. Higher DTI ratios may be approved with strong credit scores or extra cash reserves.
- Cash reserves. FHA loan qualifications don’t usually require cash reserves unless you’re buying a two- to four-unit home, or trying to qualify with a lower credit score.
- Occupancy. A one- to four-unit home financed with an FHA loan must be your primary residence for at least the first year after buying it.
- Property types. With FHA financing, you can buy a one- to four-unit home in a subdivision, an FHA-approved condominium project, a cooperative unit or a manufactured home attached permanently to a foundation. Another perk: You can purchase a multifamily home with only 3.5% down and qualify for the loan with rental income from the other units, as long as you live in one of the units for one year.
- Home appraisals. FHA purchase loans require an appraisal regardless of down payment. FHA appraisal guidelines have stricter safety and habitability requirements than conventional loans.
VA mortgage requirements
The VA removed loan limits, which means VA borrowers may be able to buy higher-priced homes. This gives military borrowers an edge over non-military borrowers who may need complicated and pricey jumbo loans (loans that exceed conventional conforming limits).
Current minimum requirements for VA loans
- VA entitlement. VA borrowers must provide a certificate of eligibility (COE) that shows enough military service to be “entitled” to a VA home loan. Most lenders obtain the COE from the VA directly, but current military personnel and veterans can also apply for it online.
- Down payment. VA loans don’t typically require a down payment. However, you may need one if you try to buy a new home with VA financing, yet still have an unpaid VA loan on another home, or if you need a jumbo VA loan.
- VA funding fee. Although VA loans don’t require mortgage insurance, a VA funding fee of 1.4% to 3.6% may be charged to military borrowers to offset the cost of the program to taxpayers. The amount will depend on your down payment amount, and whether you’ve used your home loan benefits before.
- Credit score. The VA doesn’t set a minimum credit score, but many VA lenders require a 620 minimum.
- Employment. A two-year employment history is required, but exceptions may be made for military borrowers who are recently discharged from active-duty service.
- Income. VA-approved lenders analyze your income to make sure it’s stable. Military training and education related to a non-military job may be considered for borrowers with less than a two-year income history.
- DTI ratio. The VA recommends a total DTI ratio of no more than 41%. However, higher DTI ratios may be allowed if you meet the residual income test.
- Residual income. VA lenders calculate how much free cash you have each month after paying your monthly obligations. Unlike the DTI ratio, the residual income calculator analyzes your after-tax income. The requirements vary based on your family and home size, as well as the location of your home.
- Cash reserves. Mortgage reserves aren’t usually required for VA loans. However, they may be needed for active-duty borrowers with military income that ends within 12 months of the mortgage closing date. Six months of payment reserves are required for VA borrowers purchasing a two- to four-unit home.
- Occupancy. VA loans are offered for primary residences only.
- Property types. VA loans can be used to finance one- to four-unit homes, manufactured homes attached to land, modular homes, VA-approved condominium units and planned unit developments (PUDs).
- Home appraisals. VA-approved lenders must order appraisals through the VA’s online system. The VA appraisal must confirm the property meets minimum standards to complete a VA loan. Appraisal waivers aren’t permitted for VA loans as they are for conventional mortgages.
USDA mortgage requirements
Loans guaranteed by the U.S. Department of Agriculture (USDA) allow low- to moderate-income borrowers to purchase homes in eligible rural areas with no down payment. Unlike FHA and conventional loans, there are no set loan limits. However, strict income limits typically result in maximum loan amounts well below the current FHA and conforming loan limits.
Current minimum requirements for USDA loans
- Down payment. Borrowers that meet the USDA income limits can purchase a home with no down payment. Money needed for closing costs can come from your own funds or a gift.
- USDA guarantee fees. The USDA requires two types of guarantee fees instead of mortgage insurance, charged to offset the costs of the rural loan program to taxpayers. The first is a guarantee fee of 1% of the loan amount and is typically financed. The second is an annual guarantee fee equal to 0.35% of the loan amount, which is divided by 12 and added to the monthly payment.
- Credit score. Although the USDA doesn’t set a minimum score, USDA-approved lenders typically require a minimum credit score of 640.
- Employment. USDA borrowers must have 12 months of stable income. If you’re self-employed, a two-year history is required.
- Income limits. The USDA counts the income of all adult household members to ensure the household income doesn’t exceed the program limits in your area. Total household income for a USDA loan must be at or below 115% of the median household in the area you’re buying. Use the income eligibility search tool to check on the limits in your state.
- DTI ratio. The front-end DTI ratio maximum is 29%, while the back-end DTI ratio maximum is 41%. USDA borrowers with a credit score of 680 or higher may qualify with higher front- and back-end DTI ratios of 32% and 44%, respectively, with proof of steady income and extra cash reserves.
- Cash reserves. You usually don’t need mortgage reserves for a USDA loan, but the automated approval system used by lenders may consider them in the approval process.
- Occupancy. USDA financing is for primary residences only.
- USDA property eligibility. Only homes in USDA-designated rural areas are eligible for a USDA loan. Check the USDA’s property eligibility link to see if a home you’re interested in is eligible for USDA financing.
- Home appraisals. A home appraisal is required for USDA loans and to ensure a property meets USDA guidelines. The USDA doesn’t offer appraisal waivers.
Key mortgage documents
If you plan to apply for a home loan in 2022, having the right documents upfront may lead to a smoother mortgage experience. Here’s a list of the most common items you’ll need:
- Pay stubs for the last 30 days
- W-2s for the last two years
- Bank statements for the last 60 days
- Federal tax returns for the last two years
- Proof of homeowners insurance
- 1099 forms (if you’re self-employed or commissioned)
- Documented dividends, stock earnings and other sources of income
- Proof of bonus income
- Pension statements
- Securities documents, such as stocks, bonds and life insurance policies
- Social Security or disability income award letters, if applicable
- Specific forms required by FHA, VA or USDA-approved lenders
- Gift letter (if any portion of your down payment is coming from a donor gift)
- A fully signed purchase agreement
Other mortgage requirements changes worth knowing in 2022
There were some important changes that could affect your mortgage application in 2022.
New condo and co-op rules. After the collapse of a poorly maintained condo complex in 2021, Fannie Mae added additional requirements that bars any loans for condominium or cooperative units with significant deferred maintenance. The new requirements may result in additional hoops to jump through for condo or co-op buyers.
Self-employed borrower documents. Besides standard tax return requirements, self-employed borrowers will need to provide three months’ worth of business account statements, plus a profit and loss statement as additional proof of year-to-date earnings.
Tips for qualifying for a mortgage
If you’re considering a home purchase in 2022, here’s a brief recap of which programs may be the best fit for your finances:
Qualifying for a conventional loan may be your best bet if:
- You have high credit scores
- You can make at least a 20% down payment
- You are eligible for the HomeReady or Home Possible loan programs
Qualifying for an FHA loan is a good choice if:
- You have credit scores between 500 and 619
- You have at least a 3.5% down payment and a 580 credit score
- You want to buy a two- to four-unit home with a 3.5% down payment
Qualifying for a VA loan may be a good option if:
- You’re an eligible military borrower
- You don’t want to make a down payment
- You want to avoid mortgage insurance
Qualifying for a USDA loan is a good fit if:
- You havea low-to-moderate income
- You are buying in a USDA-designated rural neighborhood
- You don’t have the money for a down payment