The standards for buying a home change from year to year. In fact, the mortgage requirements in 2021 are much different than they were a year ago.

For people that want to buy a home this year, it’s important to understand how you qualify for major loans, such as conventional, FHA, VA, and USDA.

This way, you can speed up the home-buying process and avoid any unnecessary surprises. Below, you’ll find the most pertinent mortgage requirements for homebuyers in 2021.

 

Conventional Loans Mortgage Requirements:

Conventional loans, as indicated by their name, are the most popular mortgage option. Conventional mortgage loans aren’t set by the government.

Instead, Fannie Mae and Freddie Mac regulate these loans. As a result, conventional loans are much more strict than government-regulated mortgages.

In 2021, homebuyers who qualify for pricier homes can borrow more money. The loan limit for most homes across the country has increased to $548,250.

The requirements to qualify for a conventional loan are:

Down Payment:
You must have a down payment equal to 3% of the home’s total value.

Mortgage Insurance:
If your down payment is less than 20%, you’ll need to buy private mortgage insurance (PMI). If your credit score and down payment are higher, your PMI will be lower.

Credit Score:
The minimum credit score for a conventional loan is 620. The higher your credit score, the better your mortgage rate will be.

Employment:
Lenders generally require a stable income history of at least two years.

Self-Employment:
Self-employed individuals will need to show two years’ worth of personal and business tax returns. This includes a year-to-date account of the income you’ve earned in the current year.

Income:
Most conventional loans don’t have income requirements.

Debt-to-Income (DTI) Ratio:
You can calculate DTI by dividing your total debt by your net income. The standard DTI requirement is 45% or less. If your credit score is higher, this may increase to 50%.

 

FHA Loans:

It’s easy for many people to qualify for a mortgage insured by the Federal Housing Administration (FHA). Since the FHA insures its home loans, homeowners can enjoy better rates and terms.

Compared to conventional loans, FHA is more suitable for first-time homebuyers. In 2021, the FHA has made it easier for people wanting to qualify to buy more expensive homes.

The loan limit for the FHA loan has increased to $356,362 for most homes across the country.

The requirements to qualify for an FHA loan are:

Down Payment:
You will have to pay a 3.5% down payment if your credit score is 580 or higher. However, if your credit score is between 500 to 579, you’ll need to pay a 10% down payment.

Mortgage Insurance:
To qualify for an FHA loan, you’ll need to pay two types of mortgage insurance. This includes upfront mortgage insurance premium (UFMIP) and annual mortgage insurance premium (MIP).

These amounts are automatically added to your mortgage amount.

Credit Score:
The minimum credit score for an FHA loan is 500. This is more ideal for first-time homebuyers who are working to boost their credit score.

Employment:
Like conventional loans, lenders will look at an applicant’s job history over the last two years. If you’ve constantly switched jobs or didn’t have a job for a while, you’ll need to explain these gaps.

Self-Employment:
Self-employed individuals will need to show two years’ worth of personal and business tax returns. This includes a year-to-date account of the income you’ve earned in the current year.

Income:
There are no income limits for FHA loans.

Debt-to-Income (DTI) Ratio:
Your DTI ratio will need to be between 31% and 43%. If this rate exceeds 43%, you may qualify with a higher credit score and more cash in the bank.

 

VA Mortgages:

The U.S. Department of Veterans Affairs (VA) pays for millions of home loans for military personnel. This includes:

Surviving spouses that qualify
Active-duty members of the U.S. Armed Forces
Veterans and reserves
As of 2021, the VA has removed all its loan limits. This gives military personnel an advantage over an ordinary mortgage borrower.

Applicants must provide a certificate of eligibility (COE) in order to qualify. The requirements to qualify for a conventional loan are:

Down Payment:
Standard VA loans don’t require a down payment. However, you may have to make a down payment if you want to apply for another loan or during a mortgage refinance.

Mortgage Insurance:
VA loans don’t require mortgage insurance. Instead, there is a funding fee which is between 0.5% to 3.6%. This rate will depend on if you pay a down payment.

Credit Score:
There isn’t a standard minimum credit score for VA loans. However, most VA lenders will require you to have a 620 minimum credit score.

Employment:
Two years of employment history is required. There is an obvious exception made for active-duty military personnel.

Income:
VA loan analysts will determine if your income is stable enough for you to qualify.

Debt-to-Income (DTI) Ratio:
VA loans require your DTI to be under 41%.

USDA Mortgages:
These are loans financed by the U.S. Department of Agriculture (USDA). They allow eligible people to buy homes in rural areas across the country.
The requirements to qualify for a USDA loan are:

Down Payment:
If you qualify, you won’t need to make a down payment.

Mortgage Insurance:
Instead of mortgage insurance, this loan requires two amounts that are rolled into the mortgage amount.

Credit Score:
There isn’t a minimum credit score for USDA loans. Though, most lenders will require at least a 640 score.

Employment:
Lenders generally require a stable income history of at least one year.

Self-Employment:
Self-employed individuals will need to show two years’ worth of personal and business tax returns.

Income:
To qualify, The USDA will count the income of all adult members of your household. Your total household income should be at or below 115% of the median rate based on the area you’re buying from.

Debt-to-Income (DTI) Ratio:
Your DTI should be between 29% and 41%. If your credit score is above 680, this figure rises to 32% and 44%.

 

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Understanding the different mortgage requirements as they change can be difficult. That challenge is on top of managing various mortgage borrower leads and making sure they qualify in the first place.

Get in touch with us today to learn more about our platform and start closing more deals.

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