Not every mortgage loan borrower will get quoted the same mortgage rates. Mortgage loan borrowers can shop for mortgage rates. In general, the higher your credit and income profile is, the better your mortgage rates will be, especially for those seeking conventional mortgage loans. FHA loans are somewhat different than conventional loans when it comes to mortgage rates and we will discuss FHA mortgage rates in a later paragraph.
Conventional Mortgage Rates
To qualify for a conventional mortgage loan, a mortgage loan borrower needs to have a minimum credit score of 620 FICO. Conventional mortgage rates are credit score sensitive unlike FHA loan mortgage rates. For example, if you have bad credit and lower credit scores, the chances are you will be paying high mortgage rates on a conventional loan. A 620 FICO credit score will barely get you into the door for a conventional loan and those with the minimum 620 FICO credit score can expect to pay the highest conventional mortgage rates. Some conventional mortgage lenders will even charge upfront points besides charging the highest mortgage rates with conventional mortgage loan borrowers with low credit scores and bad credit. For example, a borrower with a 760 FICO credit score may be charged a conventional mortgage rate of 4.5% with no points but a conventional mortgage loan borrower with a 620 FICO credit score might be charged a conventional mortgage rate of 5.625% plus 2 points. Conventional mortgage rates normally have mortgage rate penalties every 20 FICO POINTS.
How Credit Scores Impact Mortgage Rates
For example, a conventional mortgage loan borrower may get the best possible mortgage rates with a credit score of 760 FICO. Every 20 POINT decrease, there will most likely be a mortgage rate adjustment. For example, 760 FICO will get you par rates. 740 FICO credit score will might get you an 0.125% increase in mortgage rates, a 720 FICO credit score might get you a 0.25% increase in rates over the 760 FICO credit score, 700 FICO might yield a 0.375% increase in mortgage rates over the 760 FICO par rates, 680 FICO credit score might yield a 050% increase in mortgage rates over the 760 par rates, 660 FICO credit scores might yield an additional 0.50% increase in rates over the 760 FICO par mortgage rates, a 640 FICO might be a boost of 0.625% from the 760 FICO par rates, and 620 FICO might be a 0.75% increase over the 760 FICO par mortgage rates. Depending on the conventional mortgage lender, the mortgage lender might even hit you with points on top of higher rates for those with poor credit. For those who are seeking a conventional loan but have bad credit and lower credit scores, it might be to their best interest to try to improve their credit scores prior to applying for a conventional loan.
FHA Mortgage Rates For Borrowers With Bad Credit
FHA rates are different than conventional rates because it does not have great impact and fluctuations like conventional rates. For example, anyone with a credit score of 640 or higher will normally have the same FHA interest rate. Current FHA rates on a 30 year fixed rate mortgage loan is 4.25%. Whether your credit scores are at 640 FICO credit scores or 740 FICO credit scores, your FHA rate of 4.25% will remain the same. There are mortgage lenders who specialize in home loans with bad credit where the interest rate will still be at 4.25% with a 580 FICO credit score.
Mortgage Rates With Under 620 FICO Credit Scores
There are mortgage lenders that will penalize and charge a higher interest rate for FHA mortgage loan borrowers with credit scores of under 620 FICO. For example, say the current FHA mortgage rate on a 30 year fixed rate mortgage loan is 4.25%. Some mortgage lenders will boost the mortgage rate to 5.0% for FHA mortgage loan borrowers with a credit score between 600 FICO and 620 FICO and charge a mortgage rate of 5.625% for someone with a FICO score between 580 FICO and 600 FICO. However, these types of FHA mortgage lenders are specialty mortgage lenders with no mortgage lender overlays who can charge this type of high FHA mortgage rates. Other mortgage lenders who specialize in home loans with bad credit will offer 4.25% to 4.5% mortgage rates but may have a few mortgage lender overlays.