Why Are Mortgage Rates Higher Below 620?
Lower credit scores can feel like an uphill battle when it comes to mortgage rates, but understanding the why and the how can shift the power back into your hands. Let’s break it down and find your path to affordable rates—even below a credit score of 620.
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The 620 Credit Score Divide
Most lenders treat 620 as a make-or-break line for mortgage approval and competitive rates.
Lending Tier ------------------- Prime Subprime/FHA loans
Stuck below 620? Don’t stress. We’ll show you all your options, from government-backed FHA programs to strategies for boosting your score fast.
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Expert Tip
Many homeowners don't realize they can qualify for refinancing even with a credit score in the 580-620 range. The key is working with a lender who specializes in low credit refinancing options.
What Determines Mortgage Rates?
Risk-Based Pricing
Lenders analyze individual borrower stats, like credit score, and stack adjustments onto your rate.
Factors that Drive Higher Rates for Below-620 Scores:
- Loan-Level Pricing Adjustments (LLPAs): Higher risks mean lenders use LLPAs to add more margin.
- Loan-to-Value Ratio: Big loans + little equity = higher risk.
- Default Risk: Historical data shows the higher the risk, the more likely borrowers default:
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FHA vs. Conventional Mortgages
Why FHA Loans Can Be a Lifesaver:- Insured by the government to lower lender risk
- Easier approval for credit scores as low as 580
- Fewer and smaller adjustments to base rates
- Base FHA rate: 6.50%
- Credit Adjustment (Below 620): +0.5%–1.0%
- Your Rate: ~7.125%
Your Rate Formula Explained
Here’s how your final rate adds up if your score is at 600:
1 Market Base Rate: 6.50% 2 Credit Adjustment (Risk-Based): +0.50% 3 Other Adjustments (LTV, Margins): +0.125% 4 Your Final Rate: 7.125%
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Quick Tips to Improve Credit (Fast!)
Potential Impact ---------------------------- +20 to +40 points +10 to +50 points +15 to +30 points +20 to +50 points
When you jump from 600 to 640, you could save up to 0.50%+ on mortgage rates.
Pro Tip: Use free tools like [Credit Karma](https://www.creditkarma.com) or your lender’s recommendations to monitor progress.
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Watch and Learn: How to Get a Better Mortgage with Low Credit
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When Refinancing Still Makes Sense
Even with higher-than-average rates, refinancing might still be the right choice if:- Your current rate is significantly higher
- You need extra funds via home equity.
- You’re switching from adjustable to fixed-rate.
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Boost Your Knowledge on Mortgage Refinancing:
Key Takeaways
- Understanding your options for mortgage rates higher below 620 is the first step
- Explore related options like why higher rate low credit
- Getting pre-qualified helps you understand your real options