The difference between a 6.5% and a 7.0% mortgage rate on a $400,000 30-year loan is $130/month and $46,800 over the life of the loan. Getting the best rate isn't luck — it's preparation and knowing which levers to pull.
The 6 Factors That Set Your Rate
1. Credit Score — the Biggest Factor
Your FICO score determines your rate tier more than anything else. Even a 20-point improvement at key boundaries (620, 640, 680, 720, 760) can unlock meaningfully better pricing.
| FICO Score | Approx. 30-yr Rate (Mar 2026) | Monthly Payment ($400K) |
|---|---|---|
| 760+ | 6.11% | $2,427 |
| 720–759 | 6.33% | $2,484 |
| 680–719 | 6.55% | $2,542 |
| 640–679 | 7.03% | $2,669 |
| 580–639 | 7.50%+ | $2,797+ |
2. Down Payment / Loan-to-Value (LTV)
More equity = less risk = better rate. LTV under 80% (20%+ down on a purchase) eliminates PMI and often gets better pricing. Each 5% increment of additional down payment typically reduces the rate by 0.05–0.1%.
3. Loan Type
VA loans typically have the lowest rates (the government guarantee reduces lender risk). FHA rates are competitive. Conventional loans have the widest range based on credit. Jumbo loans carry a premium above the conforming limit. As of March 2026: VA ≈ 5.75%, FHA ≈ 6.01%, Conventional 30yr ≈ 6.11%, Jumbo ≈ 6.45%.
4. Loan Term
Shorter terms get lower rates. A 15-year mortgage is typically 0.5–0.75% lower than a 30-year. A 20-year falls in between. The tradeoff: higher monthly payment, but dramatically less total interest paid.
5. Property Type and Use
Primary residence gets the best rate. Second homes add about 0.25–0.5%. Investment properties add 0.5–1%+. Condos can add 0.25% depending on the condo association's financials. Multi-unit properties (2–4 units) add a premium but allow rental income to count toward qualification.
6. Points and Lender Fees
Paying discount points (1 point = 1% of loan) reduces your rate permanently — typically 0.25% per point. Whether it's worth it depends on your break-even timeline. On a $400,000 loan, 1 point costs $4,000 and saves roughly $53/month — break-even around 75 months (6.25 years).
How to Shop Lenders Correctly
Most buyers only contact one or two lenders. Studies show that getting at least 5 quotes saves an average of $3,000 in interest over the loan life (Freddie Mac research). Multiple mortgage inquiries within a 14–45 day window count as one inquiry on your credit report — so there's no credit cost to shopping aggressively.
Get quotes from: your current bank, a credit union, at least two online lenders (Rocket, Better, loanDepot), and possibly a mortgage broker who can shop multiple wholesale lenders simultaneously.
Compare these numbers across quotes: APR (not just rate), origination fees, total closing costs, and rate lock period. A lower rate with $5,000 more in fees may cost more total.
When to Lock Your Rate
Lock when: you're under contract, the market has been rising, or your closing is within 30–45 days. Don't lock speculatively before you find a home — most locks expire in 30–60 days. If rates drop after you lock, some lenders offer a one-time float-down option for a fee.
Never let your lock expire. Extending a rate lock costs 0.1–0.5% of the loan — on a $400,000 loan, that's $400–$2,000 for a 15-day extension. Keep closing on track.
The True Cost of 0.5% Higher Rate
On a $400,000 30-year mortgage, the difference between 6.5% and 7.0%:
- Monthly payment difference: $132/month
- Total interest difference over 30 years: $47,520
- Value of improving from 680 to 760 FICO (6.55% → 6.11%): $118/month, $42,480 total
This is why spending 3–6 months improving your credit before buying — rather than buying right now with a suboptimal score — is almost always worth it financially.