Mortgage Rates by Credit Score in 2023
The current mortgage rates in the U.S. continue to remain at historically low levels, as 30-year fixed interest rates hover near 3%. The attractive rates continue motivating prospective homebuyers; however, qualifying for loans at these rates usually requires having good credit.
Mortgage Rates By Credit Score
|760 – 850
|700 – 759
|680 – 699
|660 – 679
|640 – 659
|620 – 639
For a fixed rate, 30-year loan. Based on the myFICO Loan Savings Calculator in July 2021
*This is the total interest that would be paid over the lifetime of the loan
Consumers seeking to finance a home purchase must recognize the critical role that interest rates have on overall mortgage affordability. Roughly 90% of borrowers choose 30-year terms; therefore, even a half of a percent change in interest rate may translate to thousands of dollars of interest expense over the life of a loan.
The interest rate should not be confused with the annual percentage rate (APR), which includes additional fees. As a borrower, the interest rate you obtain results from many factors– only some of which you can actually control.
What Credit Score Do You Need For The Best Mortgage Rate?
The best mortgage rates generally apply to those with a solid credit history that demonstrate responsible management of debt. It’s recommended that homebuyers have a credit score of at least 670.
A credit score of 760 or more is typically considered a “very good” credit score and should allow the borrower access to the lowest available rates.
Individuals that begin the home buying process are encouraged to speak with a mortgage lender for obtaining a pre-approval. A preapproval verifies your eligibility for obtaining a loan, the corresponding interest rate, and the maximum or limit that can be borrowed.
The minimum credit score required also varies among the most common types or categories of loans. These include conventional loans, FHA loans, VA loans, USDA loans, and “jumbo” loans.
The term “conventional” differentiates this type of loan from any of those backed or insured by some government agency.
Most conventional loans are fixed-rate mortgages with set interest rates and require a minimum 620 credit score. A credit score of 740 usually qualifies you for the best rates.
Keep in mind that borrowers pursuing a conventional loan will likely be required to pay private mortgage insurance (PMI) unless they make a 20% down payment.
The Federal Housing Administration (FHA) incentivizes lenders to approve mortgages for those with mediocre credit, by federally insuring the loans. Although lenders may impose their own minimums, borrowers must have a score of at least 500 (preferably 580+).
Keep in mind that you’ll need a high down payment amount if you have a credit score below 580. And your interest rate will be much higher!
The U.S. Department of Veterans Affairs (VA) also guarantees loans as a benefit for current and former military members. Although no formally specified minimum score exists, most of those who obtain approval have at least a 640 score.
The U.S. Department of Agriculture (USDA) created this program specifically for borrowers that reside in rural areas. Like VA loans, no formal minimum score exists; however, applicants with a 640 score receive “streamlined processing” and will likely be approved.
Currently, a jumbo mortgage loan exceeds $548,250 and usually features stringent requirements for qualification. The minimum score among most lenders is 700, with a 720 typically necessary for obtaining the lowest rates.
Can I Get A Mortgage With A Low Credit Score?
As the aforementioned data indicates, borrowers with low credit scores may still qualify for a mortgage. In most cases, borrowers will pay higher interest rates, have fewer options, and must satisfy some other mortgage payment requirements.
The range that constitutes “low” is loosely considered as being between 580 and 669. Generally, potential borrowers with a score below 500 are unlikely to find any willing lenders and should work toward improving their credit.
Consumers with a score below 620 are unlikely to qualify for conventional mortgages or lower loan rates and should pursue the programs available to first-time homebuyers or those supported by governmental entities.
The Fannie Mae HomeReady and Freddie Mac Home Possible programs are viable options for buyers with low scores. FHA mortgages also represent a possibility but require a 10% down payment for scores less than 580.
If you’re looking to invest in real estate, you’ll generally need higher credit scores. The best rates are always reserved for borrowers with a 740 credit score or higher.
How Your Mortgage Rate is Set
Mortgage interest rates fluctuate in a similar way to gasoline prices in response to a host of different variables. Much of the volatility is attributed to market forces and economic indicators that clearly are beyond the control of any single person or company.
Different factors that contribute to your mortgage rate include:
- Your individual credit score
- Your down payment size
- If you are self-employed vs. an employee
- Your loan term length (15-year fixed and 30-year fixed are the most common)
- Your loan product (adjustable rate vs. fixed)
- Economic indicators such as inflation, the employment rate, and activity in the stock and bond markets
- Different regions have slightly different rates
- Lenders have slightly different rates
When unemployment rises, the Federal Reserve often lowers interest rates in hopes of stimulating the economy by encouraging investment, which often propels hiring. The Fed kept short-term interest rates near zero throughout the COVID-19 crisis.
Prospective home buyers should check with multiple lenders, as rates may vary slightly between different mortgage brokers and institutions. For example, banks with a huge influx of loan applications might temporarily increase rates if their loan officers reach their processing capacity.
According to the Consumer Financial Protection Bureau, today’s mortgage rates and expenses such as origination fees increasingly differ based on location, which further supports the idea of obtaining multiple loan estimates.
There are fixed-rate (rate locked) mortgages and adjustable-rate mortgages. Adjustable-rate mortgages have rates that change over the loan term.
The Relationship Between Credit Score and Interest Rates
Your credit score represents a critical factor in eligibility for a home loan, qualifying for favorable interest rates, and usually influences other key financial terms within a mortgage.
Consumers may obtain a free copy of their credit report each year from Experian, Equifax, and Transunion; the three major agencies that compile and report the credit histories of U.S. consumers. Some credit card companies now also furnish credit reports for their customers.
To initially establish a credit score, a consumer will typically need a credit account that has been open for several months. Often, those lacking any established credit history might apply for a secured credit card or consider a credit builder loan as a means of getting started.
Lenders use the loan applicant’s credit history as a means of assessing someone’s creditworthiness. The credit information allows the potential lender to gauge risk, based on the borrower’s likelihood of repaying the loan amounts.
The standard used by approximately 90% of mortgage lenders involves the consumer’s FICO score.
See our article: How does the FICO score work?
The Fair Isaac Corporation (FICO) is an organization that uses the data contained in the credit bureau report to calculate a numeric score that ranges from 300 to 850. The FICO score calculation process involves the application of an exclusive algorithm.
Lenders base their decisions regarding approving or denying a mortgage loan a relevant FICO score and the actual data within the credit reports as well.
How to Increase Your Credit Score
There are a host of ways for improving your credit score. The first step requires obtaining copies of your credit reports to identify any potential errors that may need correcting, for creating a “baseline” or starting point and setting a goal.
Clearly identify the due dates for all monthly payments as an extra reminder. Consistently making the monthly payments on time is critical in improving your credit history.
Begin by paying down credit cards and other forms of debt, which will improve your credit utilization rate or ratio. This calculation simply reflects the percentage of debt currently owed relative to your overall credit limit—strive for less than 10%.
Keep in mind that canceling old credit card accounts without a balance will potentially increase your credit utilization rate by lowering your overall credit limit.
Avoid applying for too many new types of credit accounts in a short period. When lenders make a credit inquiry this activity is noted on your credit report and may temporarily hinder your credit score.
Answers to Typical Credit Questions
How long does it take to build credit? Consumers with no credit history who establish one or more credit accounts should begin seeing progress in only a few months as the credit bureaus begin receiving this information.
Those with several existing blemishes on their credit report will typically face a greater challenge in rapidly improving their score and higher interest rates; however, satisfying any active collection accounts will help improve their score and loan options.
How can you raise your credit score 100 points? Individuals with an existing poor credit history may recognize somewhat dramatic improvements in six to twelve months by using credit and paying the debts back on (or ahead of) schedule.
Keep in mind that the majority of negative information contained within a credit report will only remain for seven years.
How to get an 800 credit score. Typically, achieving an 800 or higher credit score involves using different types of credit accounts responsibly over a period of several years.
A good credit “mix” may include an auto loan, which is classified as secured debt, and a credit card, which is generally categorized as a revolving debt account. Avoid accruing credit card debts levels near the maximum (available) limits.
One excellent solution is to check out our credit builder account plans and pricing. Our credit builder accounts enable you to obtain a secured installment loan that is directly reported to all three credit bureaus.
Other Factors to Consider
One way of accelerating the process of boosting your credit involves increasing your income. Having additional verifiable income may improve your standing with lenders and afford you the opportunity to more aggressively pay down any existing debts.
Raising your income level also represents a means of boosting your debt-to-income ratio. The calculation is simply the percentage of your total (gross) income allocated for paying debt each month, which should not exceed 30%.
Another strategy involves improving your loan-to-value (LTV) ratio, which lenders view as a key metric when assessing the risk that is best when at 80% or less. The following formula applies to calculating LTV when applying for a mortgage loan.
LTV= Mortgage Amount / Appraised Home Value
If a prospective borrower has an excessive LTV, the lender generally requires a more significant down payment to reduce the overall mortgage amount. For conventional mortgages, borrowers with an LTV of 80% or more generally must pay private mortgage insurance.
Private mortgage insurance typically ranges in price from .58 to 1.86% of the mortgage amount annually.
Boosting your credit score is key to helping you qualify for the best mortgage rates. A high credit score can save you hundreds of thousands of dollars in interest over your lifetime!
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