Mortgage rates by credit score

What mortgage rate will I get with my credit score?

If your credit score is 740 or higher – and your finances are healthy – you should be in line for some of the lowest mortgage rates around.

But this is not an absolute rule. Some types of loans offer below-market mortgage rates, even with moderate credit scores. And many factors besides credit rating also affect your rate.

So explore all of your options to ensure you get the lowest possible rate for your credit score.

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Mortgage rates are based on credit score levels

Mortgage rates are usually based on your credit “level” rather than your exact FICO score. So lenders will look at the range your score is in and adjust your rate and fees accordingly.

Although each lender is free to set their own rules, many will follow the Conforming Loan Credit Levels established by Fannie Mae.

• ≥ 740 — Lowest mortgage rates
• 720-739
• 700-719
• 680-699
• 660-679
• 640-659
• 620-639

Fannie and Freddie Mac generally don’t lend to borrowers with scores below 620. If your score is below that, you’ll want to explore FHA loans (or VA loans, if you have a history of military service).

Why your credit score matters

The fact that lenders use credit scores to determine rates is very important. This means that you might be able to get a lower rate without improving your score.

Say your current score is 718 or 719. You would only need to increase it by a point or two to get to a higher tier with a lower mortgage rate. And most of us can move our scores a few points in a month or two.

However, the opposite is also true.

Lenders regularly perform a final check on your credit score in the last few days before closing. And if your score has fallen to a lower level, you could be facing a higher mortgage rate. So be careful not to open new lines of credit, miss payments, finance big ticket items, or do anything else that might hurt your score before closing.

Impact of Your Credit Score on Your Mortgage: Examples

There is often a marked difference between mortgage interest rates at the higher and lower ends of the credit rating spectrum. And that equates to a big difference in monthly mortgage payments and long-term interest costs for homeowners.

Here are some examples to show how these credit score differences can affect your mortgage costs.

Mortgage rates by credit score

FICO, America’s largest credit scoring company, has a handy online calculator that shows how much mortgage rates vary by credit score.

As an example, here’s how average annual percentage rates (APRs) accrued by credit score as of early February 2022. Keep in mind that rates are constantly changing and will likely be different by the time you read this . These figures are only given as an example to show you how much the rates can vary.

FICO score	Mortgage APR*
760-850	3.285%
700-759	3.507%
680-699	3.684%
660-679	3.898%
640-659	4.328%
620-639	4.874%

* The myFICO.com average APR is for illustrative purposes only. Your own interest rate will be different. Rates from February 1, 2022.

Mortgage payments by credit score

According to the Mortgage Bankers Association, the average loan size for buying a home was $423,100 in December 2021.

We’ll use this loan amount and FICO’s APR estimates (above) as an example to show how credit levels affect mortgage payments and long-term interest costs.

FICO score	Mortgage APR*	Estimated monthly payment*	Total interest (30 years)*
760-850	3.285%	$1,849	$242,718
700-759	3.507%	$1,902	$261,462
680-699	3.684%	$1,944	$276,607
660-679	3.898%	$1,995	$295,152
640-659	4.328%	$2,101	$333,175
620-639	4.874%	$2,239	$382,876

*Payment examples and APR taken from myFICO.com on February 1, 2022. Payments based on $423,100 loan amount and 30-year fixed rate mortgage. Your own interest rate and monthly payment will be different.

If you compare the highest and lowest credit score levels, the borrower with better credit saves about $390 per month and $140,000 in total interest over the term of their mortgage.

Of course, most people fall somewhere between these two extremes. But the fact is, your credit can have a big impact on both your interest rate and the amount of interest you pay your mortgage lender.

If you’re able to raise your score before applying for a home loan, it could mean big savings for you over the next few decades.

Why Your Credit Rating Affects Your Mortgage Rate

Your credit score is a numerical representation of the items in your credit file. Lenders report your loans and payments to the credit bureaus and these are listed on your report.

Then an algorithm runs through your report, assigning numeric values ​​to each item. So you get negative points for late payments and other “bad” behavior. And you get pluses for on-time payments and other “good” behaviors.

The purpose of your credit score is to determine how responsible or irresponsible you are as a borrower. This can help lenders determine the risk level of your loan and the interest rate to charge you.

Types of loan

Homebuyers with low credit scores are barred from certain types of mortgages.

If your score is between 580 and 619, you probably have no choice but to opt for an FHA mortgage. Fannie and Freddie’s policies exclude just about anyone with a score below 620 from a conforming loan.

And there can be real downsides to this. FHA loans are very popular and suitable for many borrowers. But, unlike Fannie and Freddie mortgages, they charge mortgage insurance payments until you move out, refinance, or finish paying off your loan.

Meanwhile, jumbo loans, which let you borrow millions, tend to have significantly higher credit score thresholds than other mortgages. Although some individual lenders may now be less demanding, they will almost inevitably charge higher rates to those with lower scores.

Risk-based pricing

Conventional mortgages – the most common type of home loan – are also subject to “risk-based pricing,” which factors your credit score into your rate and fees.

A federal regulator, the Consumer Financial Protection Bureau (CFPB), defines risk-based pricing as follows:

“Risk-based pricing occurs when lenders offer different consumers different interest rates or other loan terms, based on the estimated risk that consumers will default on their loans.

“Each lender uses their own process to determine your risk of defaulting on a loan, but most use your credit score, employment status, income, and other outstanding debts, among other factors.”

This second paragraph is important. If each lender uses their own processes to decide how much risk you pose, you might get a better rate with the same score from one lender than another.

That’s why it’s so important to shop around for your mortgage. Every lender is different, and you won’t know which one can offer you the best rate until you compare custom quotes.

How to Get the Best Mortgage Rate for Your Credit Score

Comparison shopping for your mortgage can make a huge difference. The CFPB said in 2018: “Previous research from the Bureau suggests that failing to shop around for a mortgage costs the average home buyer about $300 a year and several thousand dollars over the life of the loan.”

But – even before you get to the mortgage shopping phase – you can work on improving your chances of getting a lower rate.

For example, if you save enough for a down payment above the minimum required, you might get a lower rate, even if your score isn’t impressive.

And the same goes if you have little existing debt. People with a low debt-to-income ratio are more likely to be able to pay their new mortgage payments than those who are already struggling to stay afloat.

Lenders consider these two factors, along with your credit score, when deciding what mortgage rate to charge you.

Tips to increase your credit score

And, of course, you can increase your credit score through your own efforts. Read How to quickly raise your credit score for helpful tips.

Here are some of the most effective steps you can take to boost your credit before applying for a mortgage:

1. Pay every bill on time
2. Reduce your credit card balances. Make sure each card stays below 30% of their respective credit limit
3. Avoid opening or closing all credit accounts except installment loans in repayment

You should also order a copy of your credit report from AnnualCreditReport.com. This site belongs to the 3 major credit bureaus. And you are legally entitled to a free copy of your report every year.

Many reports contain errors. And it can take months to get them corrected. So start the process early.

Check your mortgage rates

Your credit score is just one of the factors that go into determining your mortgage rate. Other important factors include your loan type, loan term (eg 30 or 15 years) and the current interest rate market.

If you want to know what rate you qualify for, check with a mortgage lender. You can fill out a quick pre-approval application that will give you a good idea of ​​your interest rate, home-buying budget, and future monthly payments.

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