Homeownership eligibility

What makes someone eligible for homeownership?

You'd think there'd be a set answer — but there isn't! Homeownership happens in many ways, and the factors that go into buying a home vary by person. Sure, having a high salary can make home owning easier. But making seven figures a year isn't what it takes to get a mortgage and buy your first home. Learn about the factors — and documentation — that go into getting a mortgage.

How much money do I need to make to get a mortgage?

Believe it or not, no income requirements exist to qualify for a mortgage. Does that mean anyone can get one? Not necessarily. While lenders may not have a set minimum income required to qualify a mortgage, they use several factors and pieces of information to determine whether you qualify for a loan, what the terms of that loan are, and what size mortgage is available to you. 

Instead of a set annual income, lenders will calculate your debt-to-income ratio, look at your credit history via a credit score and credit report, and ask about your available down payment.

Let's explore each of those.

Debt-to-income (DTI)

Instead of a minimum income, lenders are interested in your DTI — your debt-to-income ratio.

To verify this information, a lender will likely ask for proof of income and debts to show you can cover the monthly cost of your mortgage and related fees and closing costs. You can start with two months of complete bank statements that show transactions and balances. Then, ask what other documentation is needed, knowing it could include the following:

Documentation of debts

• Statements that show your monthly payments for outstanding debt
  • Student loans
  • Car loans
  • Credit card bills
  • Personal loans
  • Existing home equity lines of credit
• Statements that show any existing real estate debt

Documentation of income

• Employment verification
  • Pay stubs for the most recent 30 days, plus end-of-year  documentation if you earn bonuses or overtime
  • W2s or personal tax returns for the two previous years
• Self-employment verification
  • Personal tax returns for the two previous years
  • If applicable, two years of business tax returns (1065s or 1120s) including schedules and K1s
  • Other documentation may be requested, such as contract income or revenue records
• Documentation of real estate income, such as a signed lease
• Statements for any retirement or brokerage accounts
  • IRA
  • 401(k)
  • 403(b)
  • 529
  • CDs
  • Other investment accounts
• Federal tax returns, often two years’ worth
• Two most recent asset statements to support down payment and reserves

Other information that may be requested

• Award letter for Social Security income and/or retirement/pension income or complete bank statements showing consecutive deposits.
• Proof of rent payment and landlord information for renters.
• Divorce decree to verify recurring payments, such as alimony.
• Child support statements.
• Documents for any recent bankruptcy, foreclosure, or short sales.

Credit score

A credit score is a three-digit number that reflects a prediction about your credit behavior. Your credit score can be a part of many financial decisions, including getting credit cards, leases, or auto loans — and getting a mortgage. The score is an indicator of how likely you are to pay your home loan on time. 

When buying a home, a higher credit score can help you get approved for a loan, allow you to buy a higher-priced house, unlock better loan terms, and secure a lower interest rate.

Factors impacting your credit score may include:

●     Current unpaid debt and types of loan accounts

●     Length of those loan accounts

●     If and when you had debt go to collection or a property go to foreclosure, or had to declare bankruptcy

●     Any new credit applications

●     How much of your available credit you're using 

While your age doesn't directly impact your credit, lenders look at the time you've had accounts and the time since any debt went to collection. In both cases, the longer, the better!

What are the ranges of credit scores?

A scoring model is a formula used to compute your credit score. There are three national credit bureaus, and your credit score may be different with each since some lenders and creditors report to all three, others to none, and everything in between!

The ranges also vary by scoring model but generally fall in or close to these categories:

Your credit score can fluctuate depending on the data used by the scoring model, the type of loan it's being used for, and when the report is pulled. 

Can I check my credit score?

Yes! Equifax, Experian, and TransUnion are the major reporting companies. You can request weekly free copies of your credit report.

There are also ways to see your scores online for free with sites like Credit Karma and Credit Sesame.

Can I get a mortgage with a less than Excellent credit score?

Most mortgage lenders look for credit scores above 620 for conventional home loans. 

There are loan types available for individuals with less-than-stellar credit scores, including FHA loans, which we offer.

How can I get (and keep!) a good credit score?

If you want to improve your credit score to improve your odds of getting favorable mortgage terms, there are several things you can do.  

To maintain good credit:

●     Check your credit report for errors.

●     Pay your bills on time.

●     Stay well below your credit limit; experts suggest under 30% usage.

●     Ensure you have a solid credit mix with multiple accounts and different types of loans.

You might also consider these steps if your score is lower:

●     Check in with a credit counselor to make a plan.

●     Speak with a nonprofit credit-counseling agency about a debt management plan (DMP), and get on a repayment schedule. Note that this will lower your scores initially as a DMP closes out your existing cards, but scores can rebound.

Down payment

Your down payment is another factor that helps determine your eligibility for a mortgage and the rates available to you. 

Since the vast majority of people cannot buy a home outright, a down payment is an initial lump sum payment made for your home, and the rest is financed via a mortgage.

For many years, 20% of the total purchase price for a down payment was the going assumption. Today, things have shifted, and loan programs are available with as little as 3% down. We are doing our part to make homeownership affordable!

If you have a lower income, lower credit score, or both, saving for a down payment over time can be a smart move. Check out our ideas for lowering expenses to save for a down payment.

Our commitment to equitable housing goals

The Bay Area housing market may make homeownership feel like an impossibility. 

Our role is to support long-term prosperity for our communities, which benefits all of us. One way we help keep dollars local is supporting equitable housing goals: by creating opportunities for homeownership in the San Francisco Bay Area.

We do that through:

●     Actively participating and partnering with local county and city down payment assistance programs as a preferred lender.

●     Offering client education and support of local city Affordable Housing and Below Market Price home programs.

●     Dedicating ourselves to the needs of the communities we serve by supporting the Community Reinvestment Act and its goals.

●     Providing a suite of loan products offered by government-sponsored enterprises (Fannie Mae, Freddie Mac, FHA) and bank portfolio products that support first-time homebuyer clients.

We offer many mortgage choices and our straightforward Mortgages Without the Mystery℠ loan process. That means attractive rates, low down payment options, complimentary preapproval letters, and tailored service. Together, we can help make homeownership possible for more community members. 

Let’s discuss your homeownership eligibility by calling (877) 528-1481, OPTION 4.