If you’re eyeing a property that needs a $400,000 loan, you probably have a lot of questions. How much income do you need? What credit score will get you the best rate? Which fees should you expect? This guide breaks down the basics so you can walk into a lender with confidence.
First up, lenders look at three main numbers: your income, your debt‑to‑income (DTI) ratio, and your credit score. For a $400k loan, most banks want to see a gross annual income of at least $80,000‑$90,000 if you’re putting 20% down. If you’re only putting 10% down, the required income jumps because the loan amount grows.
The DTI ratio compares your monthly debt payments to your gross monthly income. A safe target is under 36%, but many lenders will stretch to 43% if your credit score is solid (720 or higher). To keep your DTI low, try to pay off credit cards or personal loans before you apply.
Credit score is the third pillar. Scores above 740 usually snag the best rates, while 660‑720 still get approved but at a higher interest. Below 660, you’ll face higher rates or may need a bigger down payment.
Putting 20% down on a $400k loan means $80,000 up front. That amount often lets you skip private mortgage insurance (PMI), which can save you $100‑$200 a month. If you can only manage 5% ($20,000), be ready for PMI and a higher interest rate.
Interest rates in 2025 are hovering around 6%‑7% for a 30‑year fixed loan, but the exact number depends on your credit profile and the loan type. Fixed‑rate loans give predictable payments, while adjustable‑rate mortgages (ARMs) may start lower but can rise after a few years.
Don’t forget closing costs. Expect 2%‑5% of the loan amount for fees like appraisal, legal work, and lender’s admin charges. On a $400k loan, that’s $8,000‑$20,000. Some lenders let you roll these into the loan, but that adds to the principal and interest.
1. Check your credit score. Pull a free report and dispute any errors.
2. Save for down payment and closing costs. Aim for at least 20% if you can.
3. Lower your DTI. Pay down existing debts or defer big purchases.
4. Get pre‑approved. A pre‑approval letter shows sellers you’re serious and locks in a tentative rate.
5. Gather documents. Have recent payslips, tax returns, bank statements, and proof of assets ready.
Following this list makes the lender’s job easier and improves the chances they’ll offer you a lower rate.
Changing jobs or taking a new loan right before you apply can raise red flags. Also, avoid big purchases like a new car or expensive furniture until after closing. Those extra debts can push your DTI over the limit and cause a rate hike.
Lastly, don’t ignore the fine print. Some loans have early‑repayment penalties or require mortgage insurance even with a 20% deposit in certain cases. Read the schedule and ask the lender to explain anything that’s unclear.
Getting a $400k loan is doable with the right prep. Keep your finances tidy, know the numbers, and stay patient during the process. The more you understand each piece, the smoother the journey to your new home will be.
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