The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.
Can You Buy a House? The Answer May Surprise You!
Most renters say they want to buy a home someday — but many think they wouldn’t qualify for a mortgage. If you’re in this group, or if you’re a current homeowner looking to upgrade and you’re worried you can’t get financing, you might not have all the facts.
A study conducted by Fannie Mae1 found that the majority of consumers responded incorrectly to questions about down payment requirements, debt-to-income limits and the minimum credit score needed to get a mortgage. So, if you’re wondering, “Can I buy a house?” The takeaway is this: There’s hope even if you don’t have perfect credit or if you have a giant student loan hanging over your head.
Ready to see how your home buying knowledge stacks up? Answer these three quick questions to see how your ideas line up with the realities of qualifying for a mortgage.
Debt & Income
Your debt-to-income ratio is calculated by dividing your monthly debt payments by your monthly gross income. This number, shown in a percentage, gives lenders an idea of your ability to manage your debt payments once a mortgage is added to the mix.
1. What is the highest debt-to-income ratio that you can have and still potentially qualify for a home loan?
Correct answer: 45-50%
While the specific requirements for approval depend on the type of loan that you are applying for, you could have up to a 45-50% debt-to-income ratio and still potentially qualify for a mortgage (though approval at 46-50% is rare). Remember, that is the maximum amount allowed. If you’re getting a “Jumbo Loan” for a considerable amount (over $548,250 in the Phoenix metro as of 2021)2, the debt-to-income ratio requirements are stricter.
Your credit score tells lenders how creditworthy you are — that is, how likely you are to be able to repay the loan and how much of a risk it would be to lend money to you. There are several companies that will provide creditors with your credit score on request, typically as part of a larger credit report.
2. How low can your credit score be in order to still qualify for a mortgage?
Correct answer: 620
This one isn’t as black-and-white as you might think. Nearly a third of those surveyed chose 620, while 14% thought a minimum score of 680 is required.
While some lenders will qualify buyers with a FICO score as low as 5503, that’s not the norm. For example, the government sponsored Fannie Mae — a national lending powerhouse — requires a minimum FICO score of 620.4
At Desert Financial, buyers with a score of 620 and above who meet our other loan qualifications (income requirements, debt-to-income ratio, etc.) could potentially qualify for a conventional home loan. The Federal Housing Administration (FHA) does allow for lower credit scores depending on other factors, but that would depend on your individual situation. Meet with a loan officer about lower-credit alternatives; even if you don’t qualify now, we can provide info on ways to increase your credit score.
Typically, you will make a down payment on a home you are purchasing, along with paying closing costs that can include things such as a home inspection. Sometimes, potential homeowners can find specials like our Participating Broker Program, which includes a credit of up to $5,000 toward your closing costs.5
3. What is the minimum down payment you will need?
Correct answers: 0% and 3.5%
This one has two correct answers — and many respondents to the Fannie Mae survey didn’t choose either one of them. Despite what 13% of those surveyed said, you don’t always need to save up for a 20% down payment. The 1 in 5 who chose 6-10% were slightly closer. Potential homebuyers can apply for conventional financing with less than 20% down. The Federal Housing Administration (FHA), Veterans Affairs and the USDA also offer select loan programs with even lower down payment requirements.
5Participation in the Real Estate Broker Program is voluntary. Desert Financial Credit Union and its subsidiary Define Mortgage Solutions LLC do not receive any benefit, monetary or otherwise, from the Participating Broker under this program. Participating Brokers are non-affiliated third parties of Define Mortgage Solutions LLC and Define Mortgage Solutions LLC makes no warranties or representations about the service provided by the Participating Brokers. To participate in this program, the member does not have to finance the mortgage loan with Define Mortgage Solutions LLC. Amount of credit will vary and is based on 25% of the buyer’s agent’s commission up to a maximum of $5,000. For full program details, see the Real Estate Broker Program Notice.