If you’re thinking about buying a home—whether it’s a starter home, a fixer-upper, or a vacation property—your credit score is going to play a big role in what you can afford and which loan options are available to you.
Credit scores help lenders decide how risky it is to lend to you. The higher your score, the better your odds of qualifying for a mortgage with a low interest rate and manageable monthly payments. But here's the thing: you don't need perfect credit to become a homeowner.
Ultimately, the minimum credit score you'll need depends on a few factors, most importantly, the type of loan you're applying for. In many cases, Oregon buyers have access to flexible programs that make homeownership more attainable, even with less-than-ideal credit.
Conventional Loans
Conventional loans aren’t backed by the government, but most follow loan limits set by the Federal Housing Finance Agency and guidelines from Fannie Mae and Freddie Mac. These government-sponsored enterprises typically require a minimum credit score of 620 and at least a 3% down payment.
Borrowers with credit scores of 740 or higher, on the other hand, may have more buying power and may qualify for lower interest rates, better loan terms, and fewer fees.
Government-Backed Loans
If your credit score falls below the conventional loan threshold, don't count yourself out. Government-backed loans-like FHA, VA, and USDA options-are designed to expand access to homeownership, especially for buyers with limited credit history or smaller down payments.
- FHA Loans. FHA (Federal Housing Administration) loans are a popular option for first-time buyers or anyone with less-than-perfect credit. They offer more flexibility than many conventional loans. If your credit score is 580 or higher, for example, you may qualify with just a 3.5% down payment. Most lenders won’t approve a mortgage for scores under 580. So, if you come across a company promising otherwise, take a closer look—offers like that may fall into the category of predatory loans.
- VA Loans. VA (Veterans Affairs)loans offer flexible terms, long-term financing, and often require no down payment or monthly mortgage insurance. And, while the Oregon Department of Veterans’ Affairs doesn’t set a minimum credit score, your score is still part of the overall underwriting decision. Most VA lenders look for a score of 620 or higher, though some may accept lower scores depending on other factors in your application.
- USDA loans. USDA (Department of Agriculture) loans may have zero-down payment options, but they typically require a slightly higher credit score (around 640). But if your credit score is under 640, don’t worry. You may still qualify for a USDA loan, but your loan officer may need to collect additional documents before approving your loan. These may include a rent/mortgage payment history and reference letters from someone who can attest to your reliability as a borrower (like a landlord, utility company, or employer).
Other Factors Mortgage Lenders Consider
While your credit score plays a big role in mortgage approval, it's not the only thing lenders look at. Most lenders evaluate your full financial picture to decide how much you can borrow (and on what terms). Here are a few other key factors they'll consider:
- Debt-to-Income Ratio (DTI). This is the percentage of your monthly income that goes toward paying debts. (And, spoilers: Lower is better.) Most lenders prefer to see a DTI under 43%, though some loan programs allow for higher ratios with strong credit or other compensating factors.
- Income and Employment History. Stable, verifiable income gives lenders confidence that you can make monthly mortgage payments. Self-employed borrowers can absolutely qualify, too, but they may need to provide extra documentation (like tax returns and profit/loss statements).
- Down Payment. The more money you put down up front, the less risk you pose for the lender. So, it’s no surprise that a big down payment often leads to better loan terms. Some loans require as little as zero to 3%, while others require more. Either way, most lenders reward higher down payments with lower interest rates.
- Assets and Savings. Lenders may want to see that you have cash reserves or emergency savings to cover your mortgage in case your income changes. This could include checking, savings, retirement accounts, or investment portfolios.
- Property Type and Value. The type of home you’re buying (single-family, condo, multi-unit) and its appraised value can also affect your loan eligibility. Lenders want to know the property is worth what you’re paying and that it meets safety and condition requirements.
Buying a home may feel like an endless stream of tedious box-checking, but every step serves a purpose. These requirements help show lenders (and, frankly, you) that you're ready to take on the responsibility of homeownership.
So, if buying a home is on your horizon, now is the time to start building healthy credit habits and paying down debt. Now is the time to save for a down payment. Every step you take today strengthens your position when you’re ready to apply. If you’re not sure where you stand, our mortgage team is here to guide you through your options and help you craft a personalized path forward. After all, the journey to homeownership looks different for everyone, but with the right support, it doesn’t have to feel out of reach.