This is part of an ongoing series in which we answer common questions among Oregon home buyers. Today’s question is, what do I need to get a mortgage loan in Oregon? What are the different requirements needed to get approved for a home loan in the state?
While the mortgage process can vary from one borrower to the next, there are certain common “ingredients” that apply to most scenarios. Here are some of the things you might need to qualify for a mortgage loan in Oregon.
1. You might need a down payment to buy a home in Oregon.
Depending on the type of home loan you are using, you might need to make a down payment when using a mortgage loan to buy a house in Oregon.
The minimum down payment requirement for a conventional or “regular” home loan in Oregon ranges from 3% to 5%. A larger down payment might be required in situations where the borrower needs a “jumbo” mortgage loan that exceeds conforming loan limits. But at a minimum, you can expect to put down at least 3% on a conventional mortgage loan in Oregon.
If you are a member of the military or a veteran, count yourself lucky. The VA home loan program offers 100% financing, which means you can buy a house in Oregon with no money down whatsoever.
The FHA loan program rounds out the top three most popular mortgage options in Oregon. With this type of home loan, you could buy a house with a down payment as low as 3.5% of the purchase price. That’s because the Federal Housing Administration allows borrowers to finance up to 96.5% of a purchase.
2. You need good credit to get a mortgage loan in Oregon.
Credit scores are computed from the information found within a person’s credit reports. These three-digit numbers show how you have borrowed and repaid money in the past.
- A positive history of responsible payments will result in a higher score.
- A pattern of missed payments, delinquencies or defaults could result in a lower credit score.
A lower score indicates a higher level of risk, and could therefore make it harder to qualify for a mortgage loan in Oregon. On the other hand, good credit can increase your chances of getting approved for home loan.
The good news is that you don’t have to have perfect credit to get a mortgage loan in Oregon. There is some flexibility built into the process. Banks and lenders tend to look at the big picture when considering mortgage loan applicants. So a marginal credit score by itself is not necessarily a “deal-breaker.”
3. It’s a good idea to have a budget on paper.
While a mortgage lender can tell you how much you might be able to borrow in the form of a home loan, the personal budgeting process is your responsibility.
We strongly encourage home buyers to establish a basic housing budget before shopping for a home. It doesn’t have to be anything fancy that requires a financial planner. You just want to take a look at the amount of money you earn compared to the amount you spend each month in recurring debts and expenses.
In an ideal scenario, you should be able to make your mortgage payment and all other monthly payments while still having some money left over to put toward savings. It’s also a good idea to have several months worth of living expenses in the bank, to serve as an emergency fund.
Technically speaking, you don’t need to have your own personal budget to get a mortgage loan in Oregon. But it’s a smart step. Creating a budget early in the process will help you in many ways. It allows you to narrow down your house-hunting process to a specific price range, while giving you the peace of mind that you’ll be able to manage your expenses going forward.
4. You’ll want to get pre-approved before house hunting.
Most of the real estate markets across Oregon are fairly competitive right now. This is especially true in the Portland metro area, where high demand and limited inventory are driving fierce competition among buyers. As a result, it’s important to enter the real estate market with your financing already arranged.
Oregon home buyers who get pre-approved for a mortgage loan have an advantage over those who skip this step. With a mortgage preapproval letter in hand, you are showing sellers that you’re serious about — and capable of — purchasing their home. Pre-approval also allows you to shop confidently within a specific price range.
5. You’ll (probably) need money for closing costs, moving expenses, etc.
The down payment is usually the biggest out-of-pocket expense a person encounters when getting a mortgage loan in Oregon. But there are some other potential costs as well.
Most home buyers who use mortgage loans to purchase a house in Oregon encounter closing costs. These are the various fees and charges that accumulate during a typical real estate transaction. On average, they can add up to 2% to 5% of the purchase price.
We’ve written a separate article about closing costs in Oregon, so it’s well worth a read.
It’s also important to factor in the cost of moving. Depending on your situation, you might have to rent a moving truck, hire movers, buy some new furniture and appliances. These things can add up, so it’s important to prepare for them in advance.