Mortgage Affordability: What Lenders Actually Check

The ratios are the filter, not the decision

Every affordability conversation starts with two numbers: your housing payment as a share of gross income, and all your debt payments as a share of gross income. The common guideline is 28% and 36%, often written as 28/36.

It is worth being precise about what that guideline is. It is a long-standing lending convention, not a rule and not a law. The published limits sit higher: Fannie Mae caps manually underwritten loans at 36%, rising to 45% where the borrower meets its credit score and reserve requirements, and allows up to 50% through Desktop Underwriter.

You will also read that 43% is the legal maximum. That has not been true for applications received since 1 October 2022. The CFPB removed the 43% cap for qualified mortgages and replaced it with a price-based test, where a first-lien loan gets the safe harbour if its APR is within 150 basis points of the average prime offer rate. The figure persists as a common internal guideline rather than a ceiling.

What this means practically is that the ratio does not produce a yes or a no on its own. It produces a band. Inside 36% you have options; between 36% and 45% the rest of your file has to be strong; above 45% you are relying on automated underwriting and compensating factors. The rest of this guide is about those compensating factors, because that is where the decision is actually made.

How much does your credit score change a mortgage?

People treat the credit score as a pass mark. It is better understood as a price list. Except at the very bottom, your score usually does not decide whether you can borrow, it decides what the borrowing costs, which then decides how much house the payment buys.

A rate difference of half a point does not sound like much. Run it through the payment and it is.

Three practical points, in order of how often they matter:

• Lenders generally use the middle of three scores, from the three bureaus, and on a joint application often the lower of the two applicants' middle scores. The score you see on a free app is frequently not the one used.
• Credit utilisation moves fastest. Paying a card down from 80% of its limit to under 30% can shift a score within a billing cycle. That is usually the quickest available improvement before an application.
• Rate shopping does not hurt you if you compress it. Multiple mortgage enquiries within a short window are generally treated as one event. Spreading them over three months is the version that costs you.

If your score is close to a threshold, it is worth spending a month improving it before applying rather than accepting the rate on offer. This is the single highest-return month of work in the whole process.

The deposit, and where it came from

Having the money is only half of it. Being able to show where it came from is the other half, and it surprises people every time.

Underwriters look for seasoned funds: money that has been in your account long enough to be clearly yours, typically two to three months of statements. A large deposit that appears shortly before an application will be queried, and "it was savings I had in cash" is the answer that causes the most trouble.

• Gifts from family are usually fine, but need a gift letter confirming the money is not a loan, and often evidence of the giver’s own funds. Plan this early; it is a common cause of delay.
• Selling something to raise the deposit needs a paper trail: the bill of sale, the transfer, the deposit matching.
• Cash, in the literal sense, is the hardest. Money that cannot be traced to a documented source frequently cannot be used at all.
• Borrowed funds generally cannot be used for a deposit, and taking a personal loan to cover it adds a monthly payment that worsens your ratio anyway.

The 20% threshold deserves separate mention, because it is a genuine cliff rather than a gradual slope. Below 20% you normally pay mortgage insurance; at 20% it disappears. On the example figures that is about $67 a month. If you are close to 20%, getting over it is worth more than the same money applied anywhere else in the deal.

What are mortgage reserves?

Reserves are the money you still have after the deposit and the closing costs. They are usually expressed in months of housing payment, and they are one of the most common compensating factors for a high ratio.

This is where buyers get caught, because the arithmetic is rarely laid out for them until the file is in underwriting:

So the buyer who saved exactly the deposit arrives at underwriting with nothing left, which is precisely the profile that makes a lender nervous about a borderline ratio. Closing costs commonly run 2% to 5% of the price, and the higher end is not unusual.

If your ratio is above 36% and you want the application to go smoothly, having a few months of payments sitting visibly in an account does more for you than almost any other single thing.

Income history, not just income

Lenders are assessing whether your income will continue, so the history matters as much as the amount.

The self-employed position has a real tension in it. Claiming every legitimate expense lowers your tax bill and lowers the income a lender will recognise. Two years of enthusiastic deductions can cost you more in borrowing power than they saved in tax. That is not an argument for overstating profit, it is an argument for discussing the timing with your accountant before you file, if you intend to buy within two years.

What sinks mortgage applications?

Most failed applications do not fail at the start. They fail between pre-approval and closing, because something changed and the file was re-checked. Lenders typically re-pull credit and re-verify employment shortly before closing.

The usual causes are:

1. Financing a car. The classic. A $380 monthly payment taken on two months before closing can remove $26,000 of buying power, and if you were near the ratio limit it ends the application outright.
2. Furniture, appliances or a phone on finance for the house you have not bought yet. Same mechanism, smaller amounts, same outcome if you were close.
3. A new credit card. Even unused, it is a new enquiry and a new account on a file being watched.
4. A large unexplained deposit landing in your account late in the process, which restarts the sourcing questions.
5. Changing jobs mid-process, particularly into self-employment or a different field.
6. Paying off and closing old accounts on well-meant advice, which can lower your available credit and shorten your average account age at exactly the wrong moment.

The rule that covers all of these: between pre-approval and closing, change nothing. No new accounts, no new payments, no job moves, no unusual money movements, no closing of old cards. Keep the file identical to the one that was approved.

What is the difference between pre-qualification and pre-approval?

These two words get used interchangeably and mean quite different things.

Pre-qualification is an estimate based on figures you supplied, usually without documents or a hard credit check. It is useful for orientation and carries no weight with a seller.

Pre-approval involves documented income, a credit check and a review of your file. It is a conditional commitment, and in a competitive market it is often the minimum needed to have an offer taken seriously.

Neither is a guarantee. Both are conditional on the property appraising at the price you agreed, on nothing changing in your file, and on final underwriting. The appraisal is the one outside your control: if the valuation comes in below the agreed price, the lender lends against the lower figure and the difference has to come from you.

Which brings up the main point of this guide.

The 50% ratio Fannie Mae permits through automated underwriting is a real option that real lenders really approve. It also describes a household giving half its gross income to debt before tax, groceries, childcare or saving anything. The ratios do not know you are about to have a second child or that your commute would double.

Work out your maximum with the affordability calculator, then find the payment at a price comfortably below it and ask whether you could still save at that number. If the answer is no, the house is too expensive, whatever the underwriting says.

Common questions

Sources

Reviewed on 23 Oct 2026 against the published sources below. Laws and prices change, so check the current position before you rely on a figure.

• Consumer Financial Protection Bureau: What is a debt-to-income ratio?
• Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios
• Consumer Financial Protection Bureau: General QM loan definition final rule (a price-based test replaces the 43% limit)

Underwriting practice varies between lenders and between loan programmes, and FHA, VA and USDA loans each have their own rules. Requirements described here reflect common agency and lender practice rather than a single published standard, and individual lenders apply stricter overlays of their own. The worked figures come from the same code that runs the affordability calculator on this site. General information, not mortgage advice.

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