Are You Ready to Buy? A 12-Point Checklist

Readiness Checklist

Each item is something a lender can confirm from a document or a calculation. Work down the list before you make an offer.

1. You have pulled your credit reports and know your middle score. FHA requires 580 or higher for the 3.5% down option, 10% down at 500–579, and treats a Minimum Decision Credit Score below 500 as ineligible (FHAHandbook.com, 2024).
2. Your score meets your program's floor: 620 fixed-rate or 640 ARM for manually underwritten Fannie Mae conventional loans, with no minimum for files run through Desktop Underwriter (Homebuyer.com, undated); 640 or higher is typical for USDA (The Mortgage Reports, undated); the VA itself sets no minimum, though lenders generally want 620 (NewDay USA, undated; Orchard, undated).
3. You have calculated your debt-to-income ratio: all monthly debt payments on your credit report, plus the proposed principal, interest, taxes, insurance and any HOA dues, divided by gross monthly income.
4. That ratio sits at or under your program's cap — 43% under FHA guidance (FHAHandbook.com, 2024), typically 43% on conventional, and usually 41% or less for USDA (Amerisave, undated; The Mortgage Reports, undated).
5. You hold at least 3.5% of the adjusted value in cash for an FHA purchase, which is FHA's Minimum Required Investment and corresponds to a maximum 96.5% loan-to-value (FHAHandbook.com, 2024).
6. Every dollar of that down payment has been in your account long enough to show on statements, or is covered by a signed gift letter with a transfer record.
7. You can produce 30 days of consecutive pay stubs showing year-to-date earnings.
8. You can produce two years of W-2s, or two years of signed personal and business tax returns plus a year-to-date profit and loss statement if you are self-employed.
9. You can explain, in writing and with a paper trail, every deposit on your last two months of bank statements that did not come from payroll.
10. Your target price fits the program: 2025 FHA loan limits reach $524,225 for single-family homes in standard-cost areas, per HUD Mortgagee Letter 2024-21 (Amerisave, 2025). USDA household income cannot exceed 115% of the area median income (The Mortgage Reports, undated).
11. Any bankruptcy is seasoned. Under HUD Handbook 4000.1, an FHA borrower may apply 12 months into a Chapter 13 repayment plan or 24 months after a Chapter 7 discharge (Amerisave, undated).
12. You have a written preapproval based on a pulled credit report and reviewed documents — not an online estimate — and you have read the Loan Estimate line by line.

For VA, add a Certificate of Eligibility. For condos, confirm the project is approved for the program you are using; that approval is separate from your own qualification.

What Lenders Actually Check

An underwriter verifies three things: who you are, what you earn, and what you owe.

Income comes from 30 days of pay stubs and two years of W-2s for salaried borrowers, and from two years of tax returns with a year-to-date profit and loss statement if you are self-employed, a contractor, or paid largely on commission. Bonus and overtime generally need a two-year history to be averaged in. Assets come from two months of bank statements; any deposit that is not payroll has to be sourced.

Debt-to-income is calculated from the minimum monthly payments showing on your credit report — car loans, student loans, credit card minimums, child support — plus the full proposed housing payment including taxes, insurance, mortgage insurance and HOA dues, divided by gross monthly income before taxes. FHA guidance is that the ratio should be no higher than 43% unless there are compensating factors such as cash reserves and residual income, and ratios up to 50% may be acceptable with those factors, compared with conventional loans that typically max out at 43% (FHAHandbook.com, 2024; Amerisave, undated). USDA is tighter, usually 41% or less alongside a 640 score and household income within 115% of area median income (The Mortgage Reports, undated).

Credit thresholds depend on how the file is underwritten. Fannie Mae manual underwriting requires 620 fixed or 640 ARM; Desktop Underwriter files have no minimum score (Homebuyer.com, undated), and Fannie Mae's 620 representative score requirement is removed for new DU case files created on or after November 16, 2025 (National Mortgage Professional, November 2025). Lenders may still apply stricter internal overlays.

Behind all of it sits the CFPB's Ability-to-Repay rule, which requires a creditor to consider your debt-to-income ratio or residual income but sets no single numeric threshold outside the General Qualified Mortgage provision (CFPB, 3 November 2014). The original General QM 43% DTI limit was replaced with a limit based on the loan's pricing — its APR — rather than DTI (Consumer Finance Monitor, 14 December 2020; NAHB, December 2020). Your interest rate is the cost of borrowing the principal; the APR folds in lender fees and points, so it is usually the higher number and is the one the pricing test uses. For 2026, the QM points-and-fees cap is 3% of the total loan amount for loans of $137,958 or more (HSH.com, 2026).

Mortgage insurance is part of the payment the underwriter tests. FHA charges a 1.75% upfront premium financed into the loan plus an annual premium of 0.55% charged monthly for the life of most loans (Herring Bank, undated). Conventional loans with a small down payment carry private mortgage insurance, which can be cancelled as equity builds. VA loans carry a funding fee instead of monthly mortgage insurance, and USDA charges upfront and annual guarantee fees; ask your lender for the exact amounts on your file. Closing costs vary widely by state and metro — transfer taxes and title practice differ — so compare Loan Estimates from local lenders rather than any national average.

Common Disqualifiers

• Middle credit score below 500: the borrower is not eligible for FHA-insured financing under HUD Handbook 4000.1 (FHAHandbook.com, 2024).
• Score between 500 and 579: not a denial, but the minimum down payment rises from 3.5% to at least 10% (FHAHandbook.com, 2024), which often breaks the budget instead.
• Debt-to-income above 43% on a conventional loan: typically a denial, since conventional loans usually max out there; the same ratio may still clear FHA with compensating factors such as reserves and residual income (Amerisave, undated).
• An undocumented large deposit: those funds are excluded from your available cash to close, and the file sits in conditional approval until you produce the source.
• Chapter 7 discharged less than 24 months ago, or fewer than 12 months of on-time Chapter 13 plan payments: FHA will not take the application yet (Amerisave, undated).
• A recent 30-day late payment on an installment loan: it pulls your score down, and a manual underwriter will usually require a written explanation before approving.
• Opening a credit card or financing a car between preapproval and closing: the refreshed credit pull adds the payment to your DTI, and the approval can be withdrawn days before settlement.
• Changing to self-employment or commission-only pay without a two-year history: the new income generally cannot be counted, which can erase your qualifying ratio.
• Household income above 115% of area median income: disqualifies you from USDA regardless of credit score (The Mortgage Reports, undated).
• A purchase price above the FHA limit — $524,225 for single-family homes in standard-cost areas in 2025, per HUD Mortgagee Letter 2024-21 (Amerisave, 2025) — pushes you to a conventional or jumbo product with its own credit and reserve rules.
• Gift funds with no signed gift letter and no transfer record: not counted toward the down payment.
• Points and fees above the 2026 QM cap of 3% of the loan amount on loans of $137,958 or more (HSH.com, 2026): most lenders will restructure or decline rather than close the loan.

Frequently asked questions

Sources

1. FHAHandbook.com — FHA Loan Requirements for Home Buyers (2024)
2. Amerisave — 7 Ways to Qualify for an FHA Loan with Poor Credit in 2026
3. FHAHandbook.com — FHA Down Payment Requirements in 2024: The Definitive Guide (2024)
4. Herring Bank — FHA Loans for Borrowers With Bad Credit: Minimum Scores and Requirements
5. Homebuyer.com — Credit Score Requirements and Qualification Rules
6. National Mortgage Professional — Fannie Mae Ending Its Hard 620 Score Cutoff (2025-11)
7. NewDay USA — VA Home Loan Credit Requirements: The Complete Guide for Veterans
8. Orchard — What Are Credit Score Requirements for VA Loans?
9. The Mortgage Reports — USDA Loan Requirements: Guide for First-Time Home Buyers
10. The Mortgage Reports — USDA Loans
11. Consumer Finance Monitor — CFPB Finalizes Ability to Repay/Qualified Mortgage Rules (2020-12-14)
12. National Association of Home Builders (NAHB) — CFPB Issues Final Qualified Mortgage Rules (2020-12)
13. Consumer Financial Protection Bureau (CFPB) — November 3, 2014 Ability-to-Repay and Qualified Mortgage Rule (Small Entity Compliance Guide) (2014-11-03)
14. HSH.com — What is a Qualified Mortgage (QM)? (2026)