What Are the Minimum Requirements to Apply for a Mortgage Loan?

Government-backed and conventional mortgage loans have different minimum requirements. Find out what they are, what documentation you need to provide, and if you can qualify for a mortgage in New York City.

Getting a mortgage in New York City isn’t easy, especially if you’re not sure how to go about it.

That, along with the high-income requirements, is why so many people think of owning New York City property as a status symbol.

It takes a lot of work and effort to get everything lined up for a home purchase.

If you’ve been mulling over the idea of getting a home in New York City, you have two options.

You can either pay cash, or you can apply for a mortgage loan.

Let’s take a look at what you need in order to buy property in New York City.

Minimum Requirements for Mortgage Loan

  • The most common mortgages for first-time homebuyers are USDA, FHA, VA, and Conventional loans.
  • Some loans allow you to put as little as0%-3.5% down.
  • Credit score requirements vary. The absolute minimum that may be accepted is 500, although the majority of programs and institutions will require 620 or above.
  • The debt-to-income ratio (DTI) also varies but is an important criterion for qualifying for a loan. Government-backed loans will be less forgiving and allow for a lower DTI.
  • Conventional loans may require the purchase of private mortgage insurance (PMI) if a down payment less than 20% is made. However, you can be avoided PMI through government-backed loans.
  • ID, tax returns, pay stubs, any asset statements, as well as any documentation on one's outstanding debt, the sales contract, and proof of homeowners insurance, are required to secure your loan.

What Kind Of Mortgage Loans Are There?

There are several different loans homeowners can choose to get when they’re looking to buy a house. The most popular are:

  • USDA Loans
  • FHA Loans
  • Conventional Loans
  • VA Loans

Each loan type has its own requirements, and what people can do with them. To get a better idea of what New Yorkers can do, let’s look at each category.

Can you get a USDA loan for a property in New York City?

USDA loans are known for their incredibly low-interest rates and reasonable payment terms.

However, they’re not an option for the typical city-dweller hoping to get a home loan through the USDA, you’re out of luck.

USDA loans are designed to invigorate rural areas and encourage rural homeownership.

Since New York City is an urban area, there’s no chance of you getting a USDA mortgage for a property within city limits.

FHA Loan Minimum Requirements

FHA loans are most commonly used by first-time homebuyers, and offer up low rates for people who want to get a house in the big city.

It’s the most popular type of loan out there for first-time buyers.

To get an FHA loan in New York City, you will need:

  • 3.5 percent down payment for your home. It can be paid via cash or gift. If you have a low credit score, the down payment requirement jumps up to 10 percent.
  • Mortgage insurance. You will need to pay mortgage insurance as part of your monthly payment, plus upfront mortgage insurance premium.
  • 500 credit score. This is the absolute lowest you can have. If you want a reduced down payment, you need a score of 580.
  • Employment records. You need to be reasonably employed for the past two years if you want to buy a home with an FHA loan.
  • DTI ratio of 43% in total. The total amount of your debt cannot exceed 43% of your total income.
  • Occupancy. You have to occupy your home at least one year after purchase.

Find out more about private mortgage insurance by reading What is a PMI Payment on a New York City Mortgage?

VA Loan Minimum Requirements

No down payment and a very low-interest rate?

Yes, you might be able to get it as part of your mortgage loan if you are a veteran or a person who is currently serving in the Armed Forces.

That being said, these loans aren’t always easy to get.

You’ll need:

  • 0 percent down payment for your home. It’s a way of saying “thank you for your service.”
  • No mortgage insurance. VA loans come with a guarantee of approval, so no insurance is required.
  • Funding fees. To help alleviate the pressure on taxpayers, VA loans require funding fees in many situations. This can vary based on how many homes you’ve bought.
  • Certificate of Eligibility. To qualify, you will need a Certificate of Eligibility proving that you are a veteran or service member who has not been dishonorably discharged. You can get one online.
  • No minimum credit score. Most VA-approved lenders, though, will require a 620 or higher.
  • DTI ratio of 41% in total. The total amount of your debt cannot exceed 41% of your total income.
  • Occupancy. You have to occupy your home at least one year after purchase.

Conventional Home Loan Requirements

If you can’t get a VA loan or an FHA loan, don’t worry. Conventional loans are also an option.

These are popular throughout the NYC area and are available through most, if not all, mortgage lenders.

  • 3 percent down payment for your home. It can be paid via cash or gift. If you pay less than 20 percent down on your home, you’re also going to need to get mortgage insurance.
  • Mortgage insurance. People who don’t meet the 20 percent minimum will need to get mortgage insurance. You will need to pay anywhere between 0.15 to 1.5 percent of your mortgage each year on top of your regular payments.
  • 620 credit score. This is the absolute lowest you can have. If you want better loan rates, having a higher credit score helps.
  • Employment records. You need to be reasonably employed for the past two years. If you have variable income, you will need to prove your income with additional paperwork, as well as tax documents.
  • DTI ratio of 45% in total. The total amount of your debt cannot exceed 43% of your total income. If you have a higher credit score, you might be able to stretch it to 50% or more.
  • Occupancy. You can use these loans for primary residences, second homes, or rental properties.

Learn more: What Are Conventional Mortgage Loans?

During economic downturns like the financial recession of 2008 and the economic downturn due to the COVID pandemic, individual national lenders such as Bank of America, Wells Fargo, Chase, Citi, and others may change their criteria for those looking to qualify.

Often the criteria become more stringent and require higher credit scores and down payments.

For example, currently, JP Morgan Chase has changed its requirements to have a credit score above 700 and a down payment of 20% or more of the home purchase price.

This is why it's more important than ever to check with each institution individually.

Qualifying For A Loan

Now that you know the bare minimums for your home loan, it’s important to know how to make sure that you will be able to qualify.

In most cases, people who have standard jobs and lifestyles won’t have an issue proving their income or identities.

However, there are some situations where you might need to jump through extra hoops. Here’s what you need to know...

Can I qualify for a loan if I'm self-employed?

Mortgage loans favor traditional employment, but self-employed people always have other options available.

If you can produce two years’ of tax returns, you should be alright.

Which key documents will be requested to provide for a mortgage?

When you’re ready to apply for a mortgage, you should prepare to have a lot of documentation available.

You will need:

  • Your government-issued IDs. A driver’s license is a must, as is your social security card.
  • Pay Stubs from the Past 30 Days. This is a must if you have regular employment.
  • 2 Years’ of Tax Returns. All borrowers will need to show this.
  • Documented Dividends, Proof of Bonus Income, Securities Statements. Any form of documentation that shows extra income will help you get approved.
  • Proof of Homeowners Insurance. Lenders won’t want to give you cash if you don’t have this.
  • Specialized Forms. Each type of loan will have forms associated with it. A lender can give these to you.
  • Gift Letter. If your down payment comes from a gift, you will need a letter showing proof of it.
  • Proof of Purchase. You will need to qualify for a home loan and show purchase proof to finalize your loan.

How Much of a Mortgage Can I Afford?

This varies from place to place, and from person to person. To get a better idea of how much house you can buy, check out this Mortgage Affordability Calculator.

Which Mortgage Type Is Best For Me?

The kind of mortgage that suits you best varies depending on what you qualify for, how much money you have to put down, as well as a number of other factors.

Here are some quick tips to help you pick out a mortgage type:

  • If you are a veteran, a VA loan is probably the best option. VA loans have guaranteed approvals and don’t require a down payment. In many cases, the loans are also more favorable than others.
  • FHA loans are great for first time home buyers who have lower credit scores. The entire purpose of an FHA loan is to open up the realm of homeownership to people who otherwise wouldn’t qualify. If you have a credit score below 620 or don’t have much to put down, you might need to stick with an FHA loan, even if you aren’t a fan of the insurance or rates.
  • Conventional loans have the most favorable rates if you have a good credit score and a high down payment. Conventional loans are popular because rates are good and because you’re given more freedom in using your property. However, getting a down payment isn’t always easy. If you want a conventional loan but don’t have the 20 percent, you might be able to get a piggyback loan to help pay for it.

Where Should I Apply For A Mortgage Loan?

You can either apply to a mortgage lender that pre-qualified you, go to a bank, or go to a lender that your realtor refers you to.

If you are working with an affordable housing group in New York City, they can refer you to a specialty lender.

Read on: How to Choose a Mortgage Lender in New York: Ultimate Guide

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Ossiana Tepfenhart
About the author

Ossiana Tepfenhart is a writer for PropertyNest and writes on all things New York City real estate.