The Impact Of Credit Score On Fixed Rate Mortgage Interest Rates In Las Vegas

Your credit score is important for many major purchases in life, including buying a car if you finance a vehicle and buying a home. Purchasing a home is of course a much larger investment, which also means that having a good credit score is essential. Your credit score directly impacts mortgage interest rates, so you’ll want to make sure you have a good credit rating before applying for a mortgage.

Why Does Credit Score Impact Mortgage Rates?

Since credit score is just one thing lenders look at when you’re applying for a mortgage, why is it such a big deal? Your credit score alone tells a lender quite a bit about your financial health. Your credit score, which includes your history of paying bills, also shows if you are typically responsible about paying your bills on time and in full. If you have a good credit score, you are considered to be less of a financial risk to the lender. Therefore, you’ll get more favorable rates. On the other hand, a lower credit score signals to a lender that you might be a financial risk. Rates are generally higher for people with people with lower credit scores to help protect the lender in case you can’t pay your loan each month or your home is foreclosed.

What Mortgage Rate Can You Qualify For?

Las Vegas mortgage interest rates vary considerably based on credit score. Lenders typically give lower rates to people with higher credit scores. Usually, you’ll get the lowest rates if your credit score is 740 or higher. However, some lenders offer lower rates to individuals with credit scores below that number, too.

While you’ll usually get a more favorable fixed rate mortgage Las Vegas with a higher credit score, you can still get a mortgage even if your credit score is not that high. If you are planning to get a conventional loan, you will likely need a minimum credit score of 620 based on Fannie Mae and Freddie Mac guidelines. However, Federal Housing Administration (FHA) guidelines permit individuals with a credit score as low as 580 to get a loan. If your credit score is below 620, you can either try to improve that rating before applying for a mortgage, or you can consider special loan categories such as FHA loans. People who have served in the military may also be eligible for a VA loan.

What is a Mortgage Credit Tier?

Lenders use a very precise tier when setting the rates for a fixed rate mortgage Las Vegas:

  • 740
  • 720-739
  • 700-719
  • 680-699
  • 660-679
  • 640-659
  • 620-630
  • 620 and lower

While they often give the best rates to people with credit scores of 740 or higher and the highest rates to people with a credit score of 620 or lower, lenders will also adjust the rates based on the credit tier above. In some cases, your credit score might be one point away from getting a better mortgage rate, or you might find that you narrowly qualify for a better rate by just one point. If you’re just one or two points from reaching a tier with a better rate, there are some simple steps that you can take to raise your credit score quickly, even within one or two months. On the other hand, if you just reached a better credit tier, you should take care to avoid making costly mistakes right before closing on your home. That includes missing payments, opening new credit lines, financing larger expenses, and more.

What Are Average Rates by Credit Score?

Each credit score corresponds to an annual percentage rate (APR). Those rates can change regularly, so you’ll want to check them again right before applying for a mortgage.

As of early 2024, the lowest APR of 6.325% is available to people with the highest FICO credit score of 760-850. A FICO score of 700-759 yielded a mortgage APR of 6.547%. With a credit score of 680-699 it’s possible to get a mortgage APR of 6.724%, and with a credit score of 660-679 you can get a mortgage APR of 6.938%. A higher mortgage APR of 7.368% is assigned to a lower FICO score of 640-659, while the lowest credit scores of 620-639 have an average mortgage APR of 7.914%. To translate those numbers into mortgage payments, an annual mortgage APR of 6.325% equates to a monthly mortgage payment of $2,421. Over the course of 30 years, assuming you’re taking out a 30-year loan, you will pay about $481,388 in total interest. On the other end of the spectrum, a mortgage APR of 7.941% means you’ll owe about $2,839 per month in mortgage payments. Your total interest payments for a 30-year loan will amount to about $631,880. Those differences in payments are significant over the course of a loan’s lifetime, so if your credit score is lower than you’d like it to be, you might find it worthwhile to work on improving your credit score before applying for a mortgage so that you end up saving money over time rather than having to pay higher interest rates.

What Influences Mortgage Rates?

Mortgage rates vary constantly, which is primarily due to the Federal Reserve adjusting federal fund rates. Federal fund rates are the rates that US banks will charge each other for making overnight loans. When the Federal Reserve increases the federal funds rate, mortgage rates typically increase, and homeowners must make higher monthly mortgage payments. However, when the federal funds rate drops, so do mortgage rates, which makes monthly payments less expensive for homeowners.

Credit Requirements by Mortgage Type

Different types of mortgages have varying credit requirements. A conventional loan usually requires a credit score of at least 620, as does a Fannie Mae Home Ready loan. A Freddie Mac Home Possible loan usually requires a minimum credit score of 660. FHA loans are more forgiving, with a minimum credit score requirement of 580 with a 3.5% down payment, or a score of 500 for a 10% down payment. VA loans don’t have a minimum credit requirement, but a score of 620 or above is preferrable. USDA loans usually require a minimum FICO credit score of 640.

What Other Factors Affect Mortgage Rates?

Along with your credit score impact, other factors can affect mortgage rates. The amount that you put down for a down payment, the total loan amount, your debt-to-income ratio, and closing costs can also affect mortgage rates. You may also be able to get discount points, which are also called mortgage points. These points are paid upfront to help lower your mortgage rate, which means they can lower interest rates over the loan’s lifetime.

Contact a loan officer today to learn more about how your credit score relates to mortgage interest rates.