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Minimum Mortgage Requirements in 2023
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If buying a home is on your wish list for 2023, it’s worth learning the minimum mortgage requirements for the most common loan programs available. Mortgage rates spiked for most of 2022 but are expected to fall in 2023.
Conforming and FHA loan limits increased again, giving homebuyers extra borrowing power as home prices remain persistently high. Although minimum mortgage requirements will remain largely the same as last year, qualifying for a mortgage may be a bit easier with new credit scoring flexibility and the removal of interest rate add-ons for some loan programs.
2023 minimum mortgage requirements by loan type
Below is a snapshot of the new loan limits, along with the basic mortgage requirements:
|Credit score||620||580 with 3.5% down|
500 with 10% down
620 is lender standard
|No minimum |
640 is lender standard
|Mortgage insurance or similar fee||PMI 0.14% to 2.33%||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 maximum*||43% back-end maximum*||41% back-end ratio*||41% back-end ratio*|
|Loan limits for single-family homes in low-cost areas||$726,200||$472,030||N/A||N/A|
*Higher DTI ratio exceptions may be possible with higher DTI ratios for borrowers with ample cash reserves, residual income or other compensating factors.
Conventional mortgage requirements
Homebuyers will have more conventional mortgage borrowing power in 2023, with conforming loan limits increasing to $726,200 for a single-family home in most parts of the country. More homebuyers may have a shot at conventional loans with new changes to how lenders calculate qualifying credit scores. Plus, borrowers looking for cheaper housing options can now finance a single-wide mobile home with a conventional loan.
Watch for the sign below to check out recent minimum requirement changes.
Current minimum mortgage requirements for conventional loans
Down payment. You’ll need at least a 3% down payment for a conventional loan. The funds can come from a gift or your own money.
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 may pay between 0.14% and 2.33% of your loan amount in annual PMI premiums. PMI premiums are normally paid as part of your monthly payment; however, PMI can be paid up front in a lump sum at closing.
Credit score. Conventional mortgage guidelines require a minimum credit score of 620. You’ll snag the best mortgage rates and lower PMI premiums with credit scores of 740 or higher.
Guideline update: Average median credit scoring
Lenders are now allowed to take an “average median score” to meet the minimum credit score, which is great news for borrowers that need two incomes to qualify but one applicant has a score below the 620 minimum. In the past, that meant a loan denial for a conventional loan. Now, a high credit score borrower can potentially lift a low credit score borrower over the 620 threshold, which could lead to a loan approval “thumbs up” instead of a hard no.
Employment. Lenders require proof of steady income and need to verify the income is likely to be predictable in the future. You’ll typically need to document two or more years of variable income earned from commissions, bonuses or overtime.
Self-employment. If you run your own business, Fannie Mae and Freddie Mac usually require two years’ worth of personal and business federal tax returns. Some lenders may bypass the self-employed tax return requirement by electronically verifying the information from your returns directly with the IRS.
Income limits. With the exception of Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® (covered below), most conventional loans don’t have income limits.
Debt-to-income ratio. Lenders measure your debt-to-income (DTI) ratio 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 rainy-day funds you’ll need in addition to your down payment and closing costs to cover several months of mortgage payments in an emergency. Lenders may require proof of up to six months of cash reserves depending on your credit scores, DTI ratio and down payment, and in the event that you’re buying a two- to four-unit home.
Occupancy. One big advantage of conventional loans over government-backed loan programs is that borrowers can purchase a second home (commonly called a vacation home) or rental property. Government-backed loan programs only allow you to finance a primary residence you live in full time.
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) and manufactured homes built on a permanent foundation.
Guideline update: Single-wide mobile home financing
To help homebuyers with more affordable home choices, Fannie Mae and Freddie Mac allow mortgages on single-wide mobile homes with a permanent foundation, in addition to regular manufactured home and land financing.
Home appraisals. Conventional loan guidelines typically require a home appraisal, which is an unbiased opinion of a home’s value from a licensed property appraiser. Borrowers making at least a 20% down payment 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
In addition to standard requirements above, you’ll need to meet a few extra requirements to be approved for a HomeReady or Home Possible loan.
Income limits. These conventional 3%-down-payment programs are the only conventional loans with strict income limits. You determine the maximum income based on your address using Fannie Mae and Freddie Mac online lookup tools:
- 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
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.
Both programs offer some extra wiggle room to help you qualify, including:
Flexibility for borrowers with no credit score. 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.
Adding income from a long-term roommate: 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. This is called “boarder income” and to use it, 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
Borrowers struggling to qualify for a mortgage will have more FHA buying leverage in 2023: FHA loan limits increased to $472,030 for most parts of the country. Higher-cost areas get even more bang for the buck, with maximum loan amounts as high as $1,089,300.
Current minimum mortgage requirements for FHA loans
Down payment. The minimum down payment is 3.5% with a credit score at or above 580, or 10% with a score between 500 and 579.
Mortgage insurance. FHA borrowers must 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. FHA loan guidelines set the lowest minimum credit score requirements of any standard loan program, allowing scores as low as 500 with a 10% down payment. A score of 580 is required for borrowers making a minimum down payment of 3.5%. FHA-approved lenders also use the Credit Alert Verification Reporting System, or CAIVRs for short, to confirm you don’t have any delinquent federal debt like student loans.
Employment. FHA lenders must look at the borrower’s income stability and employment history for the past two years. Job-hoppers and borrowers with gaps in their job history may have to provide extra documentation and explanations to be approved.
Self-employment. You’ll need to document at least two years of self-employment for an FHA loan.
Income limits. FHA guidelines don’t set any limits on qualifying income for an FHA loan.
Debt-to-income 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 only 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. You may may be approved for a higher DTI ratio with strong credit scores or extra cash reserves.
Guideline update: Energy-efficient debt exception
If you’re buying an energy-efficient home, you may qualify with a debt ratio as high as 45% and a credit score as low as 580.
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.
Guideline update: Cash reserves from a cash-out refinance
Unlike conventional loan guidelines, FHA rules allow you to use money from an FHA cash-out refinance toward required reserves.
Occupancy. You can only take out an FHA loan to buy a primary residence you intend to live in for at least one year.
Property types. An FHA loan can be used to finance one- to four-unit homes, FHA-approved condominiums, cooperative units and manufactured homes affixed permanently to land.
Home appraisals. You’ll need an appraisal to buy a home with an FHA loan regardless of down payment. FHA appraisal guidelines have stricter safety and habitability requirements, and FHA appraisals are more expensive than conventional home appraisals.
VA mortgage requirements
The VA doesn’t set 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) to buy homes in expensive parts of the country.
Current minimum requirements for VA loans
Down payment. The VA loan program doesn’t require a down payment. However, you may need one if you try to buy a new home while you own another home with a VA loan that won’t be paid off by closing.
Mortgage insurance. No mortgage insurance is required on VA loans, regardless of your down payment. Instead, you’ll pay a VA funding fee between 1.40% and 3.60% depending on your down payment and whether you’ve used your home loan benefits before.
Credit score. VA guidelines don’t set a minimum credit score, though 620 is the lowest score many VA-approved lenders will accept.
Employment. You’ll need a two-year history of employment, although VA-guidelines give some flexibility if your employer varies the income is stable and likely to continue in the future.
Self-employment. The VA guidelines are similar to conventional lending guidelines for self-employed borrowers.
Income. VA borrowers need to prove they earn stable income that covers not only their mortgage and other monthly debt but also living expenses based on their family’s size, the loan size, the region of the country they live in and the expected maintenance expenses on the home.
Residual income. The VA calculates how much extra money is left over in a veteran household after standard paycheck deductions and a maintenance expense calculator based on the square footage of the home. The result is called “residual income,” and the amount required varies based on where you live and the size of your family.
Debt-to-income ratio. The maximum DTI ratio the VA will accept is 41%, according to VA guidelines. However, lenders may approve a loan with higher DTI ratio if the residual income is at least 20% above the guideline.
Cash reserves. Most VA loans don’t require cash reserves. However, you may need reserves equaling three to six months of your monthly payments if you’re buying a multi-unit property or renting out your current home while purchasing a new one.
Occupancy. You must live in a home to buy it with a VA home loan.
Property types. You can finance a single-family home, condominium, manufactured home or two-to four-unit home with a VA loan.
Home appraisals. VA-approved lenders must order appraisals through the VA’s online system. The VA appraisal can only be completed by a VA-approved appraiser to verify the property meets minimum VA property standards. 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) are designed to help low- to moderate-income borrowers buy homes in eligible rural areas with no down payment. Unlike FHA and conventional loans, there are no set loan limits. However, strict income, location and square footage limits typically result in maximum loan amounts well below the current FHA and conforming loan limits.
Current minimum mortgage requirements for USDA loans
Down payment. The USDA loan doesn’t require a down payment.
Mortgage insurance. Rather than mortgage insurance, USDA loans require guarantee fees that work much like FHA mortgage insurance. You’ll pay an upfront guarantee fee of 1% of your loan amount, which is typically rolled into your loan amount. You’ll also pay an annual fee of 0.35% of your loan amount that’s divided by 12 and added to your monthly mortgage payment.
Credit score. The USDA doesn’t set a minimum score, but USDA-approved lenders usually require at least a 640 score to qualify.
Employment. The USDA requires documentation of employment for all adult members of a household.
Self-employment. Self-employment guidelines require a two-year history, along with a year-to-date profit and loss analysis and proof the business is still operating.
Income. There are two unique income-qualifying requirements with USDA loans:
- Your income can’t exceed specific limits. If you earn more than 115% of the median household income in your area, you won’t qualify for a USDA mortgage. Use the income eligibility search tool to check on the limits in your state.
- Your total household income is counted, including non-borrowers. All family member incomes must be included in the calculations to make sure the total income is at or below your neighborhood income limits.
Debt-to-income ratio. The DTI limit is set at 41%, with exceptions up to 44% with a 680 credit score, cash reserves and job stability for the past two years.
Cash reserves. USDA loans don’t typically require cash reserves unless you’re applying for an exception for a high DTI ratio.
Occupancy. The USDA only allows financing on primary residences.
Property location. Your home search will be limited to USDA-designated rural areas to be 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
Square footage limitations. USDA-financed properties are generally capped at 2,000 square feet, with a guideline minimum of 400 square feet.
Property types. Single-family homes, manufactured homes and condos in rural-designated areas can be financed with a USDA loan. Certain conditions apply to manufactured homes, and there are limits on how land can be used for producing income.
Home appraisals. The USDA nearly always requires an appraisal, and does not offer any appraisal waiver options for purchase loans.
Special minimum mortgage requirements for second homes and investment properties
If you’re looking for a second home, your only choice is conventional financing — FHA, VA and USDA homes can’t be used to finance one. There are also additional requirements if you’re buying an investment property, or a two- to four-unit home.
Second home loan requirements
The following guidelines apply to second home purchases:
- You must live in the home part of the year
- You can only purchase a one-unit home
- You must be able to live in the home year round
- The property can’t be managed by another company or used as a rental home
- You’ll need at least a 10% down payment
Investment property loan requirements
Conventional financing is your only option if you want to buy an investment property. To get an investment property loan, you’ll need:
- A down payment of at least 20%
- Proof of rental income
- An appraisal that analyzes the market rents for the home
- A credit score of at least 640
- Cash reserves of two to six months’ worth of mortgage payments
Multifamily home loan requirements
Buying a two- to four-unit investment property can be a quick way to earn multiple streams of rental income from a single property. However, you’ll need to spend more money up front.
To buy a multifamily investment property, you’ll usually need:
- A 25% down payment
- A minimum credit score of 640 for a two-unit home
- A minimum credit score of 660 for a three- to four-unit home
- A DTI ratio of 36% or less
- Six months’ worth of cash reserves
Key mortgage documents
If you plan to apply for a home loan in 2023, having the right documents up front 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 2023
Lower rates now available for HomeReady and Home Possible loans. To offset rising rates in 2022, Fannie Mae and Freddie Mac eliminated many of the pricing mark-ups, allowing lenders to offer lower rates to consumers trying to buy a home using the HomeReady or Home Possible mortgage programs.
You’ll pay a higher rate for a second home. Buying that vacation home will cost you more every month after Fannie and Freddie added significant markups to the pricing lenders can offer on second home mortgages.
Tips for qualifying for a mortgage
If you’re thinking about buying a home in 2023, here’s a brief recap of which programs may be the best fit for your finances:
Qualifying for a conventional loan is a good fit 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 and can make a 3% down payment
Qualifying for an FHA loan makes sense 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 the best choice 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 the best option if:
- You have a low to moderate income
- You are buying in a USDA-designated rural neighborhood
- You don’t have the money for a down payment