What really determines your mortgage rates?
When you begin exploring the process of purchasing a home, one of the first questions you’ll likely ask is: What will my mortgage rate be? It’s a crucial piece of the puzzle—and while online estimates can provide a general idea, the truth is that your actual rate depends on a variety of personal and market-based factors.
In this post, we’ll walk through the key components that influence your mortgage rate, so you can better understand what lenders are looking at—and what you can do to put yourself in the best position possible.
1. Credit Score
Your credit score is one of the most influential factors in determining your mortgage rate. It gives lenders a snapshot of your borrowing history and helps them assess how likely you are to repay your loan responsibly.
Excellent (760 and above): Typically qualifies for the most competitive rates.
Good (700–759): Still likely to receive favorable terms.
Fair (620–699): May be approved but with slightly higher rates.
Below 620: Loan options may be limited, but not impossible.
If your score could use some improvement, don’t worry—there are often strategic ways to increase it prior to applying.
2. Down Payment
The more you’re able to put down upfront, the less risk a lender takes on. A higher down payment often results in a better interest rate, because it lowers the loan-to-value ratio (LTV).
20% or more: Typically provides the best rate options and helps avoid private mortgage insurance (PMI).
Less than 20%: Still very doable, especially with FHA or other low-down-payment programs, though your rate may be slightly higher.
3. Loan Type
Different loan types come with different rate structures. For example:
Conventional loans usually offer competitive rates for well-qualified borrowers.
FHA loans tend to have more flexible credit requirements but may come with slightly higher rates and additional insurance costs.
VA loans offer favorable terms for eligible veterans, often with no down payment required.
Jumbo loans (for higher-priced properties) typically have stricter qualification standards.
Choosing the right loan type is a strategic decision based on your financial profile, home price, and long-term goals.
4. Debt-to-Income Ratio (DTI)
Your DTI measures how much of your monthly income goes toward paying existing debts. Lenders use it to assess your ability to manage a new mortgage payment.
A lower DTI typically results in a more favorable mortgage rate, as it indicates stronger financial stability. While most lenders prefer to see a DTI below 43%, each loan program has different thresholds.
5. Current Market Conditions
Lastly, it’s important to understand that mortgage rates are influenced by broader economic forces—many of which are out of your control. Inflation, the federal funds rate, bond market trends, and global events all play a role in how interest rates shift over time.
That’s why timing matters—but even more important is understanding how today’s market fits into your personal financial picture.
Next Steps
If you’re thinking about buying a home, the best thing you can do is speak with a lending professional early in the process. At Tessera Lending Partners, we take the time to walk you through each factor and help you understand what you qualify for—and what steps you can take to improve your rate over time.
Have questions or want to explore your options?
We’re here to help—reach out anytime.
