The main things lenders look at when they set your rate

Your mortgage rate depends on five concrete things a lender measures: your credit score, how much money you're putting down, the loan-to-value ratio (how much you're borrowing compared to the home's price), the type of loan you choose, and how long you lock in that rate. A lender doesn't have one rate they offer everyone—they build your rate from these pieces. The better you look on each one, the lower the number they quote you.

Beyond what you control, your rate also moves with the broader mortgage market. When the Federal Reserve changes interest rates or when investors' appetite for mortgages shifts, all lenders' rates move together. You can't change the market, but you can change how you look to a lender, and that's where your actual power sits.

Key Takeaways

  • A credit score of 740 or higher usually gets you the lowest rates most lenders offer, while scores below 620 face much higher rates or rejection.
  • Putting down 20 percent or more removes the cost of mortgage insurance and typically unlocks better rates than a smaller down payment.
  • Shopping with at least three lenders and comparing their full loan estimates (not just the rate number) shows you real differences in cost.
  • Locking your rate too early costs you if rates drop, but waiting too long costs you if rates rise—locking when you're ready to move forward protects you.
  • The type of loan you choose (fixed, adjustable, 15-year, 30-year) changes your rate because it changes the lender's risk.

How your credit score affects the rate you're offered

Your credit score is the first number a lender looks at because it predicts whether you'll pay back the loan. Scores range from 300 to 850. Most lenders have a minimum score they'll lend to—often 620—but the rate you get depends on where you fall within their range.

A score of 740 or above typically gets you the best rates a lender has available. Between 700 and 739, you're still in good territory but may see a slightly higher rate. Between 660 and 699, the rate goes up noticeably. Below 660, rates jump significantly, and below 620, many lenders won't work with you at all. The difference between a 750 score and a 650 score can be half a percentage point or more on your rate—which adds up to tens of thousands of dollars over the life of the loan.

If your score is below 740, the fastest way to improve your rate is to raise your score before you lock in. Pay down credit card balances (especially cards that are close to their limit), make all payments on time for the next few months, and don't open new credit accounts right before applying. Even a 20-point jump can move you into a better rate tier.

Why your down payment size changes what lenders charge you

The larger your down payment, the less money the lender is risking, and the lower your rate. A 20 percent down payment is the threshold where mortgage insurance disappears—that's the insurance that protects the lender if you default. Below 20 percent, you pay for that insurance as part of your monthly payment, and lenders also charge you a higher interest rate to offset their extra risk.

The difference is real. A 10 percent down payment typically costs you 0.25 to 0.5 percentage points higher than a 20 percent down payment, plus the cost of mortgage insurance itself. A 5 percent down payment costs even more. If you're close to 20 percent but not quite there, saving for a few more months to reach it often saves you more money than borrowing with a smaller down payment.

That said, if you have the cash for 20 percent but it would drain your emergency fund, a smaller down payment with a higher rate may be the smarter choice. The rate is only one part of the decision—your financial stability matters too.

How to compare rates across lenders so you actually see the difference

Never compare rates by calling three lenders and writing down the numbers they quote. Those numbers don't include fees, and fees vary wildly. Instead, ask each lender for a Loan Estimate—a standardized form that shows the interest rate, the annual percentage rate (APR), all fees, and the total cost of the loan. Federal law requires lenders to give you this form within three business days of your application.

Compare the APR across lenders, not just the interest rate. The APR includes fees rolled into the cost, so it's closer to the true cost. Look at the total amount you'll pay over the life of the loan, which the Loan Estimate shows. A lender with a 0.1 percent lower rate but $2,000 in higher fees may cost you more overall.

Shop with at least three lenders. Banks, credit unions, and mortgage brokers often price differently for the same borrower. A credit union may offer better rates to members. A mortgage broker may have access to lenders a bank doesn't. The time you spend comparing usually saves you hundreds or thousands of dollars.

What locking your rate means and when to do it

When you lock your rate, you're telling the lender: "Hold this interest rate for me until closing." The lock period is usually 30, 45, or 60 days. If rates drop after you lock, you're stuck with your locked rate. If rates rise, you're protected. The trade-off is real, and there's no perfect time to lock.

Lock your rate when you're ready to move forward with the home purchase—when you've found the house, made an offer, and the offer is accepted. Locking earlier than that is gambling that rates won't drop before you actually need the rate. Waiting too long after your offer is accepted risks rates rising before you lock.

Some lenders offer a "float down" option, which lets you lock in now but move to a lower rate if rates drop before closing. This costs extra (usually 0.125 to 0.25 percentage points), so it only makes sense if you're worried rates will drop and you want that protection. Most borrowers lock when they're ready to move forward and don't buy the float-down option.

How the loan type you choose affects your rate

A 30-year fixed-rate mortgage has a lower interest rate than a 15-year fixed-rate mortgage because you're paying back the money over a longer time, which is riskier for the lender. The difference is usually 0.3 to 0.5 percentage points. A 15-year mortgage costs more per month but you pay far less interest overall.

An adjustable-rate mortgage (ARM) starts with a lower rate than a fixed-rate mortgage because the rate can rise after the initial period. If you plan to sell or refinance before the rate adjusts, an ARM might save you money. If you plan to stay in the home for 10 years or more, a fixed rate protects you from future rate increases.

The loan type is a choice about your situation and your comfort with risk, not just about getting the lowest number. A lower rate on an ARM means nothing if rates rise and your payment doubles in five years.

Other factors that move your rate but are harder to change

Your debt-to-income ratio (how much you owe each month compared to how much you earn) affects your rate. Lenders see you as riskier if you're already carrying a lot of debt. Paying down credit cards and car loans before you apply improves this number and can lower your rate.

Your employment history matters. A lender wants to see stable income. If you've changed jobs recently, that can raise your rate slightly. If you're self-employed, lenders typically require two years of tax returns and may charge a slightly higher rate because your income is less predictable.

The property itself affects your rate. A single-family home gets a better rate than a condo or a multi-unit property. A home in a strong market gets a better rate than one in a declining area. These are things you can't change once you've chosen the property, but they're part of what the lender is pricing.

Frequently Asked Questions

Does paying points lower my interest rate?

Yes. A point is 1 percent of your loan amount. Paying one point upfront (for example, $3,000 on a $300,000 loan) typically lowers your interest rate by 0.25 percentage points. This makes sense only if you plan to stay in the home long enough to recoup that upfront cost through the monthly savings. A lender can calculate the "break-even" point for you.

Can I get a better rate if I use the same bank for my checking account?

Some banks offer small rate discounts (0.125 percentage points) to customers who have other accounts with them. It's worth asking, but the discount is usually small. Don't choose a bank for your mortgage just because you have a checking account there—the rate difference with other lenders is usually larger.

What happens to my rate if I apply with a co-borrower?

Your rate is based on the stronger of the two credit profiles. If you have a 750 score and your co-borrower has a 680 score, the lender uses the 750 for rate purposes. However, both incomes count toward what you can borrow, and both debts count toward your debt-to-income ratio. A co-borrower with lower credit or higher debt can actually raise your rate if their profile is weaker.

If I'm refinancing, do the same factors apply?

Yes—credit score, loan-to-value ratio, loan type, and lock timing all matter the same way. The main difference is that your home's current value (not the original purchase price) determines the loan-to-value ratio. If your home has appreciated, you may have more equity and may have access to for a better rate than you had originally.