Is It Hard to Get a Mortgage?

There was a time between the early 2000s through the housing bubble's burst in the mid-2000s, when mortgages were extremely easy to get, regardless of credit.

At that time, some banks and lenders offered no-documentation loans -- mortgages where the consumer tells the bank how much he or she makes, which is then not verified -- and low-documentation loans, where minimal verification was performed. Less-scrupulous lenders also offered a range of exotic mortgage products, including interest-only loans and pay-option ARMs, which could help a borrower qualify for a home that was far more expensive than they'd qualify for otherwise.

Post-housing bubble, the laws surrounding mortgage lending became more demanding and the mortgage industry tightened up. Nearly all loans required traditional documentation -- two years of tax returns, two months (or more) of bank statements, two pay stubs for every borrower, and verification of any non-payroll financial gains. Subprime mortgages and non-standard mortgage types were also put under a great deal of scrutiny and given additional disclosure requirements for the purpose of protecting consumers from dangerous loan types.

While the no-doc days have not returned, standards are looser than they were in the aftermath of the bubble's burst. It's not easy to get a mortgage, but it's certainly easier than it has been. Read on to find out more about what you'll need to qualify.

What does it take to get a mortgage?

Getting a mortgage can be a challenge, even in the best of times, with piles of required documentation, repeated verifications of things like employment and assets, and very strict rules about how much debt you can carry.

Although no one will revoke your mortgage after closing as long as you're paying your bill and maintaining the property, you can lose your approval at any point during the process if underwriting detects that you've had a significant change to your financial picture. This is important to keep in mind as you go through the process.

In general, though, what you'll need to qualify for a mortgage today is as follows.

A steady work history that can be verified. Your mortgage lender will not only want to see tax returns and check stubs to verify your actual income, but they will contact your employer to ensure you are still employed if you work at a W2 job.

A decent credit score. Many people are surprised that they don't need a perfect credit score to qualify for a mortgage, just a decent one. You can qualify for an FHA loan with a credit score as low as 580. Conventional loans can be secured with credit scores as low as 620, provided you have a large enough down payment.

Verifiable cash to close. The bank wants to know not only that you have cash to close, but where it came from. If it's just money you've saved over time, your bank records will reflect this, but if it's money from someone else, your lender will need to document where it came from. Gift money is a perfectly reasonable way to secure your down payment and closing costs, but you have to have a paper trail.

A reasonable debt load. There's a lot of bad information out there about how much debt you can carry and still qualify for a mortgage. As of November 2023, the maximum debt-to-income ratio for conventional loans is 45%, meaning that up to 45% of your income can be diverted to paying long-term debt, including your new mortgage payment.

It works a little differently for an FHA loan. These loans have two different debt-to-income ratios they look at: the front-end ratio and the back-end ratio. The front-end ratio strictly looks at your housing expenses versus your income, so if you make $6,000 a month and your mortgage payment including insurance and taxes and other fees like HOA contributions was $1,800, your front-end debt-to-income ratio would be 30%. The back-end debt-to-income ratio includes other long-term debt like loans for education, credit card, or car payments. So, if you had an additional $500 monthly in other debt, your back-end debt-to-income ratio would be 38%.

To qualify for an FHA mortgage in November 2023, you generally need a front-end debt-to-income ratio of less than 31% and a back-end debt-to-income ratio of less than 43%.

An acceptable home. This is the last part of the equation for mortgage qualification. You aren't truly qualified for a mortgage until your home is also qualified independent of you. This means that the house will have to appraise for a specific amount, depending on your mortgage terms, and, in some cases, will need to pass additional inspections related to habitability.

Getting a mortgage is still tricky, but not because of lending standards

Qualifying for a traditional mortgage type has never been a given, but it is certainly easier right now than it was immediately following the Great Recession. Today's borrowers aren't so much plagued by difficult lending standards as much as they are troubled by high home prices and tight housing inventory coupled with significantly higher interest rates than even just a year ago.

So, from a lending standpoint, it's pretty easy to get a mortgage, but when you pull back and look at the actual real estate market, it can still be rough out there. The biggest problem today is getting and keeping your debt-to-income ratios in line with houses being very difficult to afford, especially for first-time home buyers. Ideally, this will change for the better, allowing more borrowers to qualify for mortgages as incomes rise or home prices fall enough to correct any issues with debt-to-income ratios.

Related reads

Check out other pages for more information related to getting a mortgage:

• Best Mortgage Lenders for Bad Credit
• Today's Mortgage Rates
• What Are Closing Costs?