Will I Get a Better Interest Rate with a Higher Credit Score?
by Steve Kappre, NJ Loan Officer
The simple answer: Maybe, but there are many variables.
As a rule of thumb, the higher the credit score the better the rate you will receive (or the less fees you will pay). This is most relevant when talking about conventional loan programs. For the best rates and options you want a credit score of 740 of more.
What can make my rate higher?
- Credit scores below 740
- A property's status: Second home or investment property loans
- Type of property: Condo vs. single family vs. mobile home vs. multi-unit
- Loan amount: Conforming loan vs. jumbo vs. super jumbo
And the list can go on and on. Each variable can add to the interest rate and/or the cost of the loan. Some combinations can get very expensive as well as very limiting on your financing options.
FHA and VA loans are different than conventional. Many lenders will be able to offer the same rate for an FHA or VA loan if you have a 620 or better credit score. Some lenders will require a 660 or better credit score to get a better rate (or less fees).
What you may find from lender to lender is that the rates offered or the options allowed may fluctuate for the exact same program and financing scenario. On top of the guidelines that Fannie Mae, Freddie Mac, FHA, or VA set, lenders may place their own restrictions, commonly known as lender overlays. Lenders can go as far as to not allow certain loan options even though FHA, Fannie Mae, or Freddie Mac may allow the option themselves.
Keep doing you research. If you find yourself getting different answers to the same questions, you are probably talking to either loan officers that do not know what they are talking about, or one or more lenders you are talking to are telling you their guidelines based off of their particular lender overlays.
So the final answer is ...
Higher credit always helps - but isn't always required to get the best rates. Many lenders can offer the same rates for certain loans whether your credit score is 620, 720, or 820.
Steve Kappre is a mortgage loan officer in New Jersey. For more info or questions feel free to contact Steve.
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It is amazing how the pricing of rates has changed. It seems that with many lenders, you simply get the market rate if your score is over 720. Anything less than that and you get dinged.
Interesting. I was led to believe that a 620 would ALWAYS get a lower rate than a 750. Does the 620 have to pay points to get that same rate ???
The complications of mortgages make my brain hurt. And I'm with Sheldon. What's up with that?
I love how you open it......."Maybe".....The answer is Simple....Maybe. Not really all that Simple.....but I FULLY UNDERSTAND YOUR VARIABLES HERE. There are a lot of them for sure.
Steve nice job with your article on credit scores. I know there is quite a bit of standardized measuring when it comes to credit scores but as you mention many lenders treat these differently.
It amazes me now that a 700 credit score will not get you the best rate. It's harder and harder to find people these days with a 700+.
Steve, I am new in the business (five months) and am amazed to see the variations in credit offerings by different lenders. It is enough to make one's head spin.
It shoulg get interesting later this year as rates start to move upwards ! Thanks for defining lender overlays !
Steve, I always enjoy your "tutorials", and have every confidence in directing clients to them as a reliable reference.
A high credit rating is like having checken soup when you have a cold, it may not cure it but it sure won't hurt.
Always take care of your credit score when you can. It influences quite a bit, nobody ever got hurt by a great credit score.
Thank you
There are new variables everyday in this ever changing mortgage world. My last 765 FICO score buyer got denied because he was moving from another area "where there is no proof he would make the same salary in the new area!!??!!"...
if you're buying a home in southwest florida look out. it's twenty questions just to get to "and finally your rate will be influenced by your score," risked based pricing.
In Manhattan, figuring out the loan market really takes a specialist, the interest rates for non-conforming loans have so many variables like you mentioned, but clearly a strong credit score is going to be the surest way to get the best rate out there.
Very interesting Steve....I was always under the assumption that if you had a lower score you would be paying points to get the same rate as a higher score.
And May the Good Lord have mercy on your soul if you have a lower credit score. Prepare to enter the gates of hell if you do!
Valid points made.
Great post, it's always important to have the best score you can have.
Some of my clients were with Sheldon. They thought credit scores went across the board. One of the interesting, yet frustrating aspects of our industry is the phrase "it depends".
Steve: Thanks for this easy to read and understand synopsis. These days we never know what we're going to get. I'm not sure our lenders do either! Have a great day!
For all the people waiting and not wanting to get in now. Theyare going to be stunned and sad when the rates go up later this year.
I'll answer Sheldon's question as many people have the same one ... points are not always required for someone with a lower score. In some cases, the SAME RATE is available for someone with a lower score (for instance 740 vs. 700 vs. 660 may ALL provide the same rate with NO ADDITIONAL fees). Here is where it gets COMPLICATED ... sometimes the parties of FHA/FNMA have "hits" or price/cost charges. Sometimes it is LENDER OVERLAYS that make a client pay more, and lastly sometimes it is LOAN OFFICER OVERLAYS that make clients pay more (yes tongue-n-cheek, nonetheless true).
Steve,
Interesting, I had the impression a high score helped more, but I do get the variables you are talking about make a big difference.
Thank you for sharing.
All the best, Michelle
Steve, I would have thought the higher the credit score the better the rate!
It all depends, that seems to be the answer to so many real estate and mortgage related questions. I would have thought that a higher credit score would almost guarantee a better rate.
Great information for any buyer. A key note to buyers though would be that if you are comparing one lender to another be sure and compare apples to apples. Some lenders will throw a teaser rate out there...this rate might be based on a 840 credit score with 20% down....something that most buyers don't have.
Great Post. Its difficult to quote someone a rate that has no idea about their loan scenario. A lot of people shopping are simply look for rates to compare but do not want to give any information. It is next to impossible to quote an exact rate without all of the information. So, I automatically quote the best possible rates.
A btter score does typically afford you the opportunity for better rates. Just make sure you compare apples to apples. Some folks quote the best scenario to include credit score,LTV,impounds,mandatory locks,7 day lock and etc. This is not a realistic quote when you shop.
Steve--the confusion continues to exist, and most Borrowers have no idea of what the score actually means, or which score is being used. The problem now is that the credit score is a given. There is no play, no consideration of the way the Borrower has behaved even in the face of adversity. We are closer to "Brave New World" than we want to admit.
I always looked at it like this; to get the "advertised" rate, you had to have great credit. Less than great credit, and the rate goes up from there. Another thing that is frustrating is that different areas of the country also have rates higher than reported in the news media. Here in Savannah, GA it is hard to match the "going rate" even with a score of 740 or above.
It is alwyays best to have the highest FICO score possible. But some lenders will make concessions and give some very decent rates to borrowers with less than stellar credit. So you are right on and I always tell my clients to shop around and go so far as to suggest at least 3 lenders to help their approval along.
Good Information. Straight answer = maybe.
I enjoyed this post today very much. I'm dealing with someone now who is getting a great rate for a high credit score. As you say, there are many things that go into the whole package, income, debt to income ratio, etc...et c...etc..
Good read, i've bookmarket it.
Patricia/Seacoast NH
Steve,
I always just assumed that the higher the credit score, the lower the interest rate. Now I know that this isn't always true. Thanks.
Rich
This is good information for consumers. So many just don't understand what goes into making up their final rate and what can be done to effect it.
Thanks for the post - I'm going to re-blog. Just wondering if there's anybody out there with a 740 score anymore!
Steve, thanks for the explanation. Seems I've been batting zero with virtually every client I pick up here lately. They've all had not so great credit scores. One of them finally got her scores into the mid 600's and she still can't get a loan.
I recommend a couple of different lenders, but they always say there's "nothing they can do with scores like that". I know lending requirements are strict, but I'm beginning to wonder if I need to start shopping for some other lenders that may have programs for someone that does have a score in the mid sixes.
Chanda panda
Revised: Will I Get a better interest rate LOAN with a Higher Credit Score?
MAYBE...
HI Steve, thanks for sharing this information. As always, it "depends" on any number of factors. Wouldn't it be nice if it was more straight forward?
Hi Steve:
I stopped by to wish you a Happy St Patrick's Day from the team at National Credit Fixers!
:)
I had a client that had flawless credit his entire life (he was 57 years old), and very little outstanding on his current mortgage. He received his approval on his seasonal home and he came right out and told the bank that if they wanted to do business with someone of his calliber, that they had to give him even a better rate than the "lowest rate" that they had already given him. They dropped another 1/4 point immediately.
Chanda - Mid 600's should not be difficult if the buyer can document income and assets. Is it a weird property?
I think your first answer of "MAYBE" is dead on. I've seen many people with higher credit scores get really crappy loans just because they had a higher debt to income ratio. It really does come down to the situation, not all homes, neighbors and situations are the same. Credit Score certainly isn't everything.
Nope. That's why I'm thinking I need to start shopping for other loan officers to add to my toolbox.