What mortgage rate will I get with my credit score?
Mortgage rates by credit score are not one-size-fits-all.
While a credit score of 740 typically secures the lowest rates, borrowers with moderate credit may still find competitive options through specific loan types.
Remember, your credit score is just one piece of the puzzle. So let’s explore all of your options to make sure you’re getting the lowest rate possible for your credit score.
Credit bureaus such as Equifax and Experian assess credit scores, providing lenders with insights into borrowers' risk levels. Mortgage lenders often categorize credit scores into "credit tiers," using models like FICO scores to determine interest rates.
How credit scores affect mortgage rates
Your credit score significantly impacts the interest rate you’ll receive on your mortgage.
This score is a numerical measure of your creditworthiness, based on factors like payment history, total debt, types of credit used, and length of credit history. Higher scores generally lead to lower mortgage rates, as lenders perceive you as a lower-risk borrower.
Credit scores are determined by credit bureaus like Equifax and Experian. Their comprehensive assessment helps lenders evaluate the risk of lending to you.
Credit tiers and their impact on mortgage rates
Mortgage lenders often use “credit tiers” to determine interest rates, which are based on FICO scores. FICO, short for Fair Isaac Corporation, is a widely used credit scoring model. Here’s a breakdown of typical credit tiers and how they affect mortgage rates:
≥ 740: Lowest mortgage rates
720-739
700-719
680-699
660-679
640-659
620-639
< 620: Highest mortgage rates
It’s important to note that even small differences in your credit score can have a significant impact on your mortgage rate. For example, if your score is 718 or 719, improving it by just a few points could bump you into a higher tier with a lower interest rate. Conversely, if your score drops to a lower tier before closing, you may face a higher mortgage rate.
While your credit tier is an important factor in determining your mortgage rate, other aspects like loan type (conventional, FHA, VA, etc.), down payment size, and property type (single-family home, condo, etc.) also play a role. For instance, FHA loans allow lower credit scores but may have higher interest rates compared to conventional loans for borrowers with good credit.
Mortgage rates by credit score
Mortgage interest rates can vary significantly based on credit scores, leading to substantial differences in monthly mortgage payments and long-term interest costs for homeowners.
FICO, the biggest credit scoring company in American real estate, provides a helpful online calculator that illustrates how much mortgage rates can differ based on credit scores. Here’s an example of how average annual percentage rates (APRs) varied by credit score in mid-2024:
Mortgage payments by credit score
According to the Mortgage Bankers Association, the average loan amount for a new single-family home purchase was $405,400 in March of 2024.
We’ll use that loan amount, and the APR estimates from FICO (above), as an example to show how credit tiers impact mortgage payments and long-term interest costs. If you compare the highest and lowest credit score tiers, the borrower with better credit saves about $445 per month and $160,200 in total interest over the life of their mortgage loan.
In addition to mortgage rates by credit score, home prices and mortgage insurance can greatly impact your monthly mortgage payments, especially in high-cost areas like New York. Using a mortgage calculator can help you estimate these costs and compare different loan options.
Conventional loans require private mortgage insurance (PMI) for down payments less than 20% of the home price, while FHA loans have both upfront and annual mortgage insurance premiums (MIP).
The type of loan you choose, such as a fixed-rate or adjustable-rate mortgage (ARM), can also affect your interest rate and long-term costs. Consider your financial situation and goals when selecting a loan for your primary residence.
Mortgage rates by loan type
In addition to credit score, mortgage rates also vary by loan type. Here are some common loan types and their typical rates.
Conventional loan rates
Conventional loans are the most common type of mortgage and typically offer competitive rates for borrowers with good credit. Rates may be slightly higher than for government-backed loans like FHA or VA. Today’s mortgage rate for conventional loans is % (% APR).
FHA loan rates
The Federal Housing Administration guarantees FHA loans, which is why they often have lower rates than conventional loans. Today’s mortgage rate for FHA loans is % (% APR). These loans can be a good option for first-time home buyers with lower credit scores or limited down payment funds.
VA loan rates
VA loans are available to eligible military service members, veterans, and their spouses. They often feature lower rates than conventional loans and don’t require a down payment.
USDA loan rates
USDA loans are designed for rural homebuyers and offer competitive rates for those who qualify. These loans typically require a minimum credit score of 560.
Jumbo loan rates
Jumbo loans are mortgages that exceed conforming loan limits set by Fannie Mae and Freddie Mac. Due to the higher loan amount, jumbo loans often have slightly higher rates than conforming loans.
Mortgage rates by credit score are heavily influenced by the Federal Reserve’s adjustments of the federal funds rate. This is the rate banks charge each other for overnight loans.
Why your credit score impacts your mortgage rate
Your credit score helps lenders assess the risk of loaning you money. A higher score indicates you’re a lower-risk borrower, which usually translates to a lower interest rate. Conversely, a lower score suggests you’re a higher-risk borrower, so lenders typically charge a higher rate to offset that risk.
Risk-based pricing and mortgage rates
Conventional mortgage loans are subject to “risk-based pricing,” which factors your credit score into your rate and fees. The Consumer Financial Protection Bureau (CFPB) defines risk-based pricing as offering different interest rates or loan terms based on the estimated risk that consumers will fail to pay back their loans.
Each lender uses its own process to determine risk, considering factors like credit score, employment status, income, and outstanding debts. Because each lender assesses risk differently, it’s important to shop around and compare personalized quotes to find the best rate for your credit score.
Other factors that affect your mortgage rate
While credit scores are a key component in determining your mortgage rate, there are several other factors that lenders take into account. These elements can significantly influence the rate you’re offered and ultimately affect your monthly payments and the total cost of your mortgage.
Down payment amount
The size of your down payment plays a significant role in determining your mortgage rate, as it directly impacts the loan-to-value ratio (LTV). A higher down payment typically means a lower LTV ratio, which reduces the lender’s risk. This can often lead to a lower interest rate for the borrower.
Loan amount
The total amount you borrow can impact your mortgage rate. Larger loan amounts sometimes lead to higher interest rates, as they represent a greater risk to the lender. On the other hand, smaller loan amounts typically carry less risk and might qualify for lower rates.
Debt-to-income ratio
Your debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income. A lower DTI ratio suggests you have a good balance between debt and income, which can lead to lower mortgage rates.
Discount points
Buying discount points upfront can lower your mortgage rate. Discount points, also called mortgage points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This can be a way to lower your overall interest costs over the life of the loan.
Closing costs
Closing costs, including origination fees, can influence your mortgage rate. If you choose not to pay these fees upfront and instead roll them into the loan, it can result in a higher interest rate.
How to get the best mortgage rate for your credit score
Comparison shopping for your mortgage can make a huge difference. The CFPB says failing to comparison shop costs the average homebuyer approximately $300 per year and many thousands over the life of the loan.
But before you even get to the mortgage shopping phase, you can work on improving your odds for a lower rate.
You should also consider working with a housing counselor. They can help assess your finances and credit to determine when you’re ready to apply for a mortgage.
With some upfront preparation, you can get the lowest possible mortgage rate for your credit score and save on your home loan.
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At Pineyro Capital Group Inc., NMLS# 420112, we take pride in assisting home buyers in achieving their homeownership goals through full doc, stated and lite doc mortgage loans. With over $5 billion in originations and a commitment to excellence, we're dedicated to providing personalized service, competitive rates, and streamlined loan processes tailored to your needs. Contact us today to learn more about qualifying for a stated income mortgage loan in Florida and take the first step towards homeownership with confidence.
Disclaimer: Pineyro Capital Group Inc., NMLS# 420112, is an equal housing lender. All loan programs are subject to credit approval and property appraisal. Terms and conditions may vary.
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