Mortgage rates by credit score in 2020
March 22, 2021
It is no surprise that having a good credit score can get you a better mortgage. From the time you get your first credit card, you are taught that credit management habits are important—and for good reason. A few points can make a huge difference in the amount of interest you pay throughout the life of a mortgage.
If you are considering buying a home in the near future, you will want to first understand the relationship between credit score and mortgage rates to set yourself up for success. Below are mortgage rates by credit score, based on the national average home price of $320,000, as of March 2020.
| FICO® Score | National Average APR | 30-Year Fixed Mortgage Monthly Payment | 15-Year Fixed Mortgage Monthly Payment |
|---|---|---|---|
| 760 and Above | 2.8 percent | $1,334 | $2,196 |
| 700-759 | 3.1 percent | $1,372 | $2,230 |
| 680-699 | 3.3 percent | $1,403 | $2,258 |
| 660-679 | 3.5 percent | $1,441 | $2,291 |
| 640-659 | 4.0 percent | $1,519 | $2,360 |
| 620-639 | 4.5 percent | $1,621 | $2,448 |
Source: FICO® data obtained by Informa Research Services as of June 3, 2020.
How much does credit score affect mortgage rate?
The short answer: a lot. An individual’s credit score is one of the main factors lenders look at in determining the risk level of a borrower. Since your credit report shows whether or not you have made on-time loan payments in the past, it is a good indicator of whether you will be a reliable borrower for a mortgage in the future. Make sure to check your report before applying for a mortgage and dispute any errors to get your score in the best shape possible.
Although it is best to have a high credit score, there are actions you can do when working toward getting a mortgage with bad credit. Consider saving up more money for a down payment to lower your risk profile. You can also shop around for alternatives to conventional loans, such as an FHA loan, which makes it possible to get a mortgage with a credit score of just 500.
What credit score do you need for the best mortgage rate?
For the best possible mortgage rate (currently 2.9 percent, according to the chart above), your credit score should be at least 760. This score sits in the middle of the range of what FICO® considers a “very good” score: 740–799. And while having an “exceptional” score in the 800s is undoubtedly beneficial, when it comes to mortgage lenders, a score of 760 and one of 820 are viewed as equal.
Another less obvious benefit of having a high credit score is the money you will save on private mortgage insurance (PMI). Private mortgage insurance is required on conventional mortgages for borrowers who put down less than 20 percent—which is why you will often see financial advisors suggest you strive for a 20 percent down payment.
Those with average credit scores in the 680–699 range with a five percent down payment will have a PMI premium of 0.96 percent. However, with a credit score of 760 or above, that rate drops to just 0.38 percent. The difference can save borrowers thousands annually.
How can I qualify for a lower mortgage rate?
To qualify for a lower mortgage interest rate, increase your credit score. If you have not bought your home yet, consider holding off until you can launch your credit score into the next APR bracket. For example, if you are right on the cusp of 760—perhaps your score is in the upper 750s—it may be better to wait until you have boosted your score to 760. The money you will save in interest over the life of your mortgage will be worth it.
Another way to qualify for a lower mortgage rate is to put more money into your down payment. This will lower your loan-to-value ratio, which is a metric lenders use to determine the risk level of the loan. Simply put, the loan-to-value ratio is the percentage of the home’s purchase price that you’re borrowing. So if you put 20 percent ($60,000) down on a $300,000 home, you are borrowing 80 percent ($240,000). Your loan-to-value ratio is 80 percent.
Lenders see loan-to-value ratios higher than 80 percent as a high risk, which will likely increase your mortgage rate—especially if other factors, such as credit score, are not in tip-top shape.
If you have already bought a home and are looking to lower your mortgage rate through a refinance, consider plugging your numbers into a refinancing calculator to determine if it’s your best option. Remember to consult your financial advisor if you’re unsure about major financial decisions.
Credit score is one of the biggest indicators of financial health. If your score is not where you would like it to be, let us take a look. We will do the work to dispute any questionable negative items on your credit report, which could help clean up your report when it is time to apply for a mortgage.
Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona. In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.
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