Mortgage rates surged closer to 7% this week, a blow to hopeful homebuyers this spring.
The rate on the 30-year fixed mortgage increased to 6.87% from 6.74% the week prior, according to Freddie Mac. Rates tilted higher as inflation remained hotter than expected, leading to the Fed putting off any potential rate cuts until summer.
The uptick in rates caused some rate-sensitive homebuyers to retreat from the market, as affordability remains a top concern for the entry-level pool. Those looking to refinance also backed away from their plans as the chances of grabbing a lower rate slipped away.
Still, housing experts remain hopeful about the direction of affordability as more inventory trickles into the market.
“The housing market continues to face elevated mortgage rates, high prices, and low for-sale inventory,” said Hannah Jones, senior economic research analyst at Realtor.com. “As the spring season approaches, many buyers and sellers are getting warmed up to enter the housing market.”
Demand falters as rates jump higher
As mortgage rates rebounded, both refinance and purchase activity faltered — a recurring theme this season.
The volume of applications to refinance a home fell 3% for the week ending March 15 and was 3% lower than the same week a year ago, according to the Mortgage Bankers Association (MBA).
Demand for refinance had gained surprising momentum in the weeks leading up to March 8, with applications up 12%. The sudden jump in activity was due to a larger 24% increase in the government refinance index, the MBA noted, as homeowners who purchased at top rates last year were closely attuned to any opportunity to snatch a lower rate.
But as rates rebounded this week, that window of opportunity closed.
Read more: Mortgage rates hover around 7% — is this a good time to buy a house?
Purchase applicants also retreated from the market, with the volume of applications to buy a home down 1% for the week and 14% lower than the same week a year ago.
“Most homebuyers are sensitive to interest rates, which is why we see mortgage applications increase when rates fall and decline with rates increase,” said Bright MLS chief economist Dr. Lisa Sturtevant.
“However, not all homebuyers are equally sensitive to interest rates,” she added. “The number of cash buyers has increased. In many markets, these cash buyers are not investors but regular home buyers who have accrued significant equity in an existing home that they can roll over into the purchase of a new home.”
Just getting into a home has become more expensive. Mortgage News Daily, which tracks rates daily, revealed that rates surpassed 7% last week and have remained above that threshold as of March 20.
For first-time homebuyers, in particular, the fluctuation of rates has been a tough blow — especially as inventory of entry-level homes remains scarce and competition for homes within their price point is picking up.
According to the National Association of Realtors, the average price of a previously owned home increased to $384,500 in February, marking the eighth consecutive month of year-over-year price gains. The median price was also 5.7% higher than a year earlier.
“Additional housing supply is helping to satisfy market demand,” said NAR chief economist Lawrence Yun. “Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices.”
Buyers and sellers need to adjust to ‘new normal’ in rates
Mortgage rates were elevated after data last week showed inflation and payroll numbers came in stronger than expected, which fueled concerns about the timing of the Fed’s plans to issue rate cuts this year.
Federal Reserve officials expect three interest rate cuts this year, which should help ease pressure on overall borrowing costs when they come to pass. However, when those rate cuts will happen remains to be seen.
“There is some uncertainty in the housing market as we head into spring,” said Sturtevant. “The Federal Reserve likely will put off rate cuts until the summer, which suggests that mortgage rates will not come down much in the first half of the year. Buyers and sellers seem to be adjusting to the ‘new normal’ of mortgage rates above 6.5%.”
Still, there’s some hope that buyers will see mortgage rates start to ease sooner rather than later.
“As we enter the spring homebuying season, we still anticipate rates will decrease in the coming months,” said MBA president and CEO Bob Broeksmit.
Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
Click here for real estate and housing market news, reports, and analysis to inform your investing decisions.
Generally, it helps to save up to 20-25% of a house’s sales price. However, factors like geographical location, economic climate, real estate interest rates, and global events will influence how much money you’ll need to buy a house.
Key Takeaways:
An ideal down payment is 20% to 25% of a home’s value.
USDA and VA home loans traditionally don’t require down payments.
If you make a down payment below 20%, you may be required to get private mortgage insurance.
How much money do you need to buy a house? That cost depends on numerous factors like inflation and real estate trends. According to the Census, homes sold for a median price of $420,700 in January 2024.
Thankfully, you don’t need to pay off that amount all at once. A down payment that’s 20% to 25% of a home’s value can help you secure a property. Even if you don’t have the funds to make a sizeable down payment, low and no-down-payment mortgage options are available.
Below, we’ll share our expertise to help you learn all about loans and mortgage options. We’ll also answer several common questions and share helpful tools, like Credit.com’s mortgage calculator.
All Costs Associated with Buying a House
Spend enough time shopping around for houses, and you’ll learn very quickly that a property’s sales price isn’t the only expense you’ll have to pay. Below, we’ll cover down payments, earnest money deposits, and other factors that determine the real cost of a home.
Get matched with a personal
loan that’s right for you today.
Learn
more
Down Payments for Different Mortgage Options
According to the United States Census Bureau, 661,000 new homes were sold in January 2023. Most homebuyers don’t pay off their properties in full from the get-go. Instead, they cover a portion of the home’s cost with a down payment, then gradually pay off the remaining value via monthly mortgage payments.
“How do home mortgage rates work?” and “What types of mortgages am I eligible for?” are common questions for first-time homebuyers.
Below, we’ll discuss four mortgage options and break down how each of them works.
1. Conventional Mortgage
A conventional loan is a mortgage option that’s offered by a private lender instead of the government. Mortgage companies, credit unions, and banks offer conventional loans, though they might require a down payment between 20% and 25% of a property’s sales price.
Lenders might request that you purchase private mortgage insurance (PMI) if your down payment is less than 20%. PMI reimburses lenders if you don’t make your mortgage payments, and borrowers will have to pay for coverage annually.
2. USDA Mortgage
The United States Department of Agriculture (USDA) offers this unique mortgage to borrowers who live in rural areas. A USDA mortgage has no down payment requirement, and its interest rate is very competitive.
To qualify for a USDA loan, you need to:
Buy an eligible property. Your potential home has to be in an eligible rural area.
Meet income guidelines. To qualify for a USDA loan, your income can’t exceed a state-specific amount.
Use the home as your primary dwelling. You have to live on the property permanently.
Be a U.S. citizen, a U.S. national, or a qualifying resident alien. Foreign nationals not authorized to remain in the United States can’t get USDA loans.
You’ll also need to meet the lender’s credit requirements. On average, a credit score of 620 or more will qualify you for a government-backed USDA loan.
3. FHA Mortgage
The Federal Housing Administration (FHA) offers this distinct government-backed mortgage. Borrowers can secure an FHA mortgage with a down payment as low as 3.5%.
Borrowers with very low credit scores might be eligible for an FHA loan, at the expense of having more strict loan limits and higher up-front costs.
To get an FHA loan, you need to meet the following requirements:
Primary residence. The house associated with your loan must be your primary residence. You can’t rent it out to others for profit.
FHA maximum limit. FHA loans can only apply to properties within a set price range. In 2024, the maximum FHA loan amount is $498,257 for single-family homes.
Debt-to-income ratio. To qualify for an FHA loan, you must spend a maximum of 43% of your income on housing costs and housing-related debt.
4. VA Home Loans
Veterans Affairs (VA) loans offer low credit requirements and come with no down payment restrictions.
Certain people qualify for VA loans, including:
Service members who’ve served for at least 90 days consecutively.
Veterans who’ve served at least 181 continuous days, depending on their deployment date.
National Guard members with six years of Active Reserve status or 90 consecutive days of active duty service.
Surviving spouses of veterans, including veterans who are missing in action or being held as a prisoner of war (POW).
Earnest Money Deposit
An earnest money deposit is a payment that buyers can place to demonstrate how serious they are about obtaining a property. Earnest money deposits are normally between 1% and 3% of a property’s sales price. This deposit is not the same as a down payment.
When you make an earnest money deposit, those funds are put into an escrow account. If the seller of a property closes on a deal with you, your earnest money deposit is then added to your down payment. If the seller doesn’t close on the deal with you, it’s possible to regain your earnest money deposit if contingencies are set in place.
Several common contingencies include:
Home inspection contingency: Buyers request to have an inspection conducted on a property. If problems are discovered, buyers can back out of a deal.
Home sale contingency: Buyers who might need to sell their current home can ask for extra time.
Insurance contingency: This is for buyers who may need time to obtain home insurance for a property.
Closing Costs
Closing costs include taxes, appraisals, home inspection costs, title costs, and attorney fees. They’re generally between 3% and 6% of your mortgage principal. Your mortgage principal is the amount you borrow—so the bigger your down payment, the less you’ll pay in closing costs.
Let’s use the $200,000 home above as an example. Consider these three 4% closing cost scenarios:
Your down payment is 10%, or $20,000, leaving a mortgage principal of $180,000. Your closing costs will roughly amount to $7,200.
You offer20%, or $40,000, as your down payment. Your mortgage principal is $160,000, and you’ll pay $6,400 in closing costs.
You apply for a mortgage with no down payment, so your mortgage principal is $200,000. Ultimately, you’ll pay $8,000 in closing costs.
Home-Buying Examples
Next, we’ll show you how to determine your down payment on a home with the previous loans as examples. Let’s imagine your dream home is on the market for $200,000.
Down payments for conventional mortgages are usually $10,000 – $40,000.
USDA mortgages normally don’t require down payments.
An FHA mortgage can cost as little as $7,000.
A VA home loan also doesn’t require a down payment.
USDA and VA home loan mortgage options have the lowest up-front costs for eligible borrowers. An FHA mortgage is less costly than a conventional loan, but interest rates will affect your total payments in the long term.
Financial Resource Ideas
Making a down payment can be challenging because you need a paper trail of your purchases. In most cases, you can’t use borrowed money for a down payment.
Conversely, we know several creative ways to come up with a down payment:
Profits earned from stock or bond sales
Filing for an IRA or 401(k) withdrawal
Paying with money from your checking or savings account
Cash earned from a money market account
Using funds from your retirement account
Monetary gifts
You can roll other funds, like your tax return or a security deposit refund, into your down payment, too.
How Much Money Should I Save Before Buying a House?
It’s important to look at the big picture when buying a house. You’ll need to pull together a down payment and closing costs, but you’ll also need to budget for removal costs, inspections, and repair fees.
A tool like a monthly budget template can put your common expenses into perspective and help you better understand how much house you can afford with your current income.
When Should I Seek Mortgage Relief?
“What happens if I miss a mortgage payment?” is another concern for new and long-time homeowners. First, know that your home won’t immediately be foreclosed on if you miss a payment. Foreclosure usually isn’t imminent unless you’ve missed two or three payments.
If your mortgage payments aren’t within reach, you can contact your lender and explain your specific situation. Seeking forbearance, which is a temporary pause on your payments, can also help you regain your bearings.
Prepare to Buy a Home with Credit.com
Knowing your credit score and understanding the elements that affect it can help you know what you need to do to prepare for loan opportunities.
Sign up for Credit.com’s ExtraCredit® subscription to check out 28 of your FICO® scores. Afterward, visit our mortgage rates page to get additional information.
It is possible to get a home loan while on maternity leave. The process may involve your lender verifying your “temporary leave income,” if any; your regular income; and your agreed-upon date of return. Anyone on a standard temporary leave is considered employed, whether the absence is paid or unpaid.
Read on to learn more about buying a home while pregnant and how this will impact your ability to get a mortgage.
Buying a House While Pregnant
Hey, why not take on two of the biggest life stressors at once? Sometimes it just happens this way, with parents preparing for a baby and a new home and mortgage.
First, consider if you can wait a bit to buy a home. It may lead to less stress overall during the pregnancy. Plus, the added pressure of a deadline may lead to hasty decision-making that buyers could regret.
And unless an employer is covering moving expenses, add that sizable cost to all the rest.
But if the move can’t be avoided because of a job relocation or other circumstances, it may be important to find a home before the baby arrives. Which does have a silver lining: Saving for a down payment could interfere with goals like saving for a child’s college tuition.
Another possible benefit to buying a house while pregnant is that the relocation could lead to a better school district or area to raise a child.
Ultimately, the decision to buy a house while pregnant is personal. 💡 Quick Tip: Want the comforts of home and to feel comfortable with your home loan? SoFi has a simple online application and a team dedicated to closing your loan on time. No surprise SoFi has been named a Top Online Lender in 2024 by LendingTree/Newsweek.
What Is the FMLA?
The Family and Medical Leave Act, or FMLA, gives eligible employees job protection and up to 12 weeks of unpaid leave a year in the event of:
• Childbirth
• Adoption or foster child care
• Care for a spouse, child, or parent with a serious health condition
• A personal serious health condition
• Qualifying exigencies arising from covered active duty or “call to covered active duty status”
The FMLA guarantees that the employee can return to their job or an equivalent one and that they’ll receive health care benefits during their leave.
Employees are eligible if they work for a company that has 50 or more staffers and have completed at least 1,250 hours of work in the previous year.
In addition to the FMLA’s 12 unpaid weeks off, more and more states are enacting paid family leave laws. Currently, 13 states plus the District of Columbia have made this mandatory. And your employer may cover your pregnancy, childbirth, and recovery thanks to short-term disability insurance. Your benefit would be a percentage of your normal earnings.
Recommended: How Much Does it Cost to Adopt a Child?
How Maternity Leave Impacts a Mortgage
Before diving into the nuances of maternity leave and its impact on qualifying for a mortgage, here’s a quick refresher course on the home-buying process.
Mortgage approval from a lender primarily hinges on two factors:
• Creditworthiness. How likely is the borrower to pay back the loan, based on their credit history?
• Ability to pay. Does the borrower generate enough income, and have a certain debt-to-income ratio, to make the monthly mortgage payments?
The lender may contact an employer to verify a borrower’s employment status and income.
Why could getting loans for pregnant women prove a challenge? Income. Consider these points:
• As long as the lender can verify that the borrower is employed — and remember, someone on temporary leave is considered employed — and generates enough income to cover the mortgage, that could be enough.
• Expectant borrowers aren’t legally required to disclose their pregnancy to a lender. However, the employer can tell the lender about impending maternity leave when they call to verify employment status.
• If a borrower is going on unpaid leave, they may need to disclose it to the lender. That’s because the period without pay may qualify as a financial hardship, which a borrower is required to inform a lender of.
• The lender can’t assume the mother-to-be won’t return to work after maternity leave. Lenders consider that the mother will return to work after maternity leave and continue bringing home paychecks.
• Before approval, the lender will ask the borrower for written notice of her intent to return to work, and may ask for an expected return date.
• The mortgage lender may request a tax slip from the last calendar year if the borrower is a salaried employee.
• A lender may approve the mortgage if your employer verifies in writing that you will return to your previous position or a similar one after your maternity leave. The lender will also consider the timing of the first payment.
• If the borrower will have returned to work when the first mortgage payment is due, the lender can consider regular income in qualifying for the mortgage.
• If the borrower will return to work after the first mortgage payment due date, the lender must use the borrower’s temporary leave income (if any) or regular employment income, whichever is less, and then may add available liquid financial reserves.
• VA loans don’t count temporary leave income towards qualifying for a mortgage, however.
💡 Quick Tip: Want the comforts of home and to feel comfortable with your home loan? SoFi has a simple online application and a team dedicated to closing your loan on time. No surprise SoFi has been named a Top Online Lender in 2024 by LendingTree/Newsweek.
Should I Buy a Home While on Maternity Leave?
For those who qualify for a mortgage while on maternity leave, the question may be, “Should I buy a house while on maternity leave?” not “Can I buy a house while on maternity leave?”
As mentioned, moving can be an incredibly stressful process, pregnancy or no pregnancy. And even if you made a budget for a baby, life has a way of throwing in surprises.
Homeownership can also come with financial surprises. The majority of homeowners reported paying for an unexpected repair within the first year.
Having a child and buying a home both require saving some significant cash. By budgeting, doing the two simultaneously is possible. So it’s your call. Not taking the double plunge could give you time to review what you need to buy a house.
Recommended: First-Time Homebuyers Guide
Home Loans With SoFi
Pregnancy is not a legal limiting factor in a mortgage lender’s eyes, but getting a home loan while on maternity leave will depend on your income, savings, work return date, and credit history.
Whether you’re on a temporary leave or not, it can be worthwhile to take a look at your home loan options.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Does being on maternity leave affect getting a mortgage?
It can, but only in the sense that maternity leave can affect a homebuyer’s reported income. If buyers anticipate an unpaid maternity leave, they may need a sizable savings account.
Should you buy a home on maternity leave?
Buying a home while on maternity leave depends on your family’s needs and finances. But moving can be stressful, and adding infant care can be a lot to handle.
Who does FMLA cover?
The Family and Medical Leave Act provides 12 weeks of unpaid, job-protected leave per year for eligible employees in the case of the birth or adoption of a child or placement of a foster child, and for other reasons.
Photo credit: iStock/FatCamera
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Amy Yzaguirre and her husband bought a home in Oregon with a 2.5% interest rate in 2023.
The lower mortgage rate, attained via an assumable mortgage, saves them $40,000 over 28 years.
Yzaguirre and her husbandhave used their savings to pay off medical debt and purchase a new car.
Thanks for signing up!
Access your favorite topics in a personalized feed while you’re on the go.
Advertisement
This as-told-to essay is based on a conversation with Amy Yzaguirre, 40, a student and barista. She and her husband purchased a home with an assumable mortgage in Tigard, Oregon, in March 2023. An assumable mortgage allows qualifying buyers to acquire the interest rate, current principal balance, and other conditions of a seller’s existing loan. Not all loans can be assumed. The essay has been edited for length and clarity.
I grew up in the Portland, Oregon, area but moved to Boise, Idaho, in 2017. In 2022, my husband and I decided to move back to Oregon.
My husband had applied for some jobs in Portland and got a position, but we had just refinanced our Boise home. Since we had signed a no-flip clause, we couldn’t sell it until April 2022.
We planned that he would move to Portland and live with a friend while our son and I stayed back and got the house ready to be sold in April. Then, we would join him and buy a house.
Advertisement
But in January 2022, I was diagnosed with stage 4 non-Hodgkin’s lymphoma. I didn’t want to undergo half of my chemo treatment in Boise and the other half in Portland, so we had to figure out a way to be together as a family while I underwent chemotherapy.
We had to keep the house until April, but we couldn’t afford to pay two mortgages or pay rent and a mortgage. A family friend gave us the idea to buy an RV and live on my parents’ land in Oregon. We lived there for eight months. It was pretty rough, but we made it work.
In March of 2022, we started looking at houses through our real-estate agent. I was in the middle of chemo, but on the days that I would feel good, we would meet up with brokers.
One suggested, “To get the type of mortgage loan that you want, you need to wait until you’re back to work.” So, we decided to pause our home search until then. While waiting, we got our credit in a good spot. When August came around and I got a job, we started seriously looking at houses.
Advertisement
Finding an affordable home to buy was difficult
We wanted to live in the suburb that my parents lived in, called Tigard, but the area was too expensive for us, and the real-estate market was fairly competitive.
It’s funny how an area can be a nice, family-friendly, affordable place to live, and then all of a sudden, it becomes overpopulated and it’s not nearly as reasonable as it used to be.
We eventually decided to look in the Sherwood area instead. At this point, I had beaten cancer and was in remission. My husband and I were excited that we could take the next step and buy a new house.
We qualified for a substantial loan through our mortgage company, but we didn’t want our monthly payments to be too high. We set our budget for a home at no more than $450,000 — but even that was a bit of a stretch.
Advertisement
As we looked, we really couldn’t find many homes that checked all the boxes for that amount.
But in September 2022, we found a townhouse that was on the market for $416,000. On a flyer for the home, its seller had written that if we wanted to assume her loan, she was locked in at 2.5%.
That didn’t necessarily draw us in because we didn’t quite know what that meant.
Related stories
I was more interested in the fact that it was a 1,500-square-foot townhouse that had everything we wanted, like a backyard, a big garage, and an open floor plan with hardwood floors.
Advertisement
At the time, I believe mortgage rates were close to 6%. If we had a traditional mortgage, our monthly payment would have been about $3,000 a month. I remember being like, “OK, that’s pretty high, but I think we can make it work. We’re just going to have to be really careful.”
An assumable mortgage was too irresistible to pass up
We told our real-estate agent about the home and asked her what an assumable mortgage was. She said, “You’ll have to talk to our mortgage broker. I don’t really have any experience with that and don’t know what it entails.”
I asked the mortgage broker, and he admitted, “Well, we haven’t dealt with this in probably about 30 years, so I’m not entirely familiar with the process. But essentially, when you assume a loan, you’re taking over the seller’s mortgage. If you qualify, you can adopt their locked-in rate, and you don’t have to pay current mortgage rates.”
He warned us that the seller’s mortgage company was not going to hold our hand through the process. But if we were willing to put in a rigorous amount of work and do a lot of bugging, we should definitely try it because it would save us a lot of money.
Advertisement
I did the math. The seller was locked in at 2.5%, so if we qualified to assume the loan, our mortgage would be a little over $2,100 a month versus the over $3,000 we would be paying with a traditional mortgage at current market rates. It would save us over $40,000 in the long run. That would give us wiggle room and allow us to continue our lifestyle instead of having to scale back.
It sounded amazing, so my husband and I decided to pursue the loan assumption.
It’s not easy assuming a loan — and it took forever
In March 2023, we purchased our home for $418,900 and made a down payment of $48,000. The home had a 30-year fixed-rate mortgage, with 28 years left on a $383,000 Federal Housing Administration loan.
We worked with Flagstar to assume the mortgage, and they assigned us an advocate. He was really nice and helped us through the process.
Advertisement
In the end, we ended up submitting over 200 documents, and the process took three full months.
At a certain point, my husband was over it and just wanted to go with a normal mortgage. I had to assure him I could take care of it and that it would all be worth it — we just had to be patient.
The mortgage broker we originally spoke to was right — as the company processing the assumable mortgage isn’t making any money, you really have to advocate for yourself, jump in there, and ask questions.
I tell anybody who has asked me about assuming loans that it’s going to take a long time and it will be grueling. The process will humble you in some ways, too, because you start doubting yourself, like, “Am I a horrible financial person? Why did they need so much information? Am I not doing this right? Is there something that I’ve done wrong?”
Advertisement
But once you get through the process, you should be able to get it.
It just takes time.
The hard work getting the assumable mortgage was worth it
After living in a tiny 21-foot RV, buying a home gave us freedom and a new beginning. It also helped me not feel boxed in anymore.
Even though I was fortunate to have good insurance during chemotherapy — once I hit a certain deductible, insurance covered the rest — and have excellent insurance through my current job, I still had quite a few medical bills to pay off.
Advertisement
With the extra money we have saved on our mortgage payment, I’ve been able to pay them down.
We also used the extra money to pay off other debt and purchase a Toyota Tacoma with cash — we don’t have a car payment at all.
We’re not living grand or extravagantly, but at least we’re not having to eat ramen every night. Knowing that we worked so hard for this lifestyle and achieved it ourselves, I feel like we’re truly living life to the fullest.
Building your dream home from the ground up is a great way to make sure it meets all your expectations. Securing a home construction loan can assist you in realizing your plans, but you need to know the specifics that come with these types of loans.
Here’s an overview of what you should know when obtaining a construction loan.
What is a construction loan?
A construction loan is a type of loan specifically designed to finance the cost of building a new home or renovation of an existing property. It’s a short-term loan with a variable interest rate, and is typically used during the construction phase of a project.
Unlike a traditional mortgage, construction loans are disbursed in installments as the construction progresses, rather than as a lump sum. This helps to minimize the risk for both the lender and the borrower, as the loan amount is based on the actual costs of construction.
How do construction loans work?
Construction loans are typically offered by specialized lenders or banks and are often secured by the property being built. Borrowers are usually required to provide a detailed construction plan, as well as a budget and timeline for the project. The lender will then release funds as each construction milestone is completed and inspected.
At the end of the construction process, the construction loan will typically be converted into a permanent mortgage. This conversion process can occur automatically or require a separate application and approval process, depending on the lender’s requirements.
3 Types of Home Construction Loans
There are three main types of home construction loans: construction-to-permanent, construction-only, and renovation.
Construction-to-Permanent Loan
With this type of home construction loan, once the home is built, the loan converts to a permanent mortgage. You typically only have to pay closing costs once, which can save you money.
You can also choose to pay interest during the building phase. However, it’s typically a variable interest rate, so your payments will fluctuate. After the home is built, and your construction loan converts to a permanent mortgage, you might be able to choose whether you want a variable rate or a fixed rate.
You may want to consider this type of loan if you have a feasible plan for your house’s construction, and you want to pay it back over time with a reliable monthly payment.
Construction-Only Loan
This type of loan requires full repayment at the end of the construction phase, rather than automatic conversion to a mortgage. This means that you’ll incur two sets of closing costs and have to secure approval for two separate loans.
However, a construction-only loan may require a smaller down payment compared to a construction-to-permanent loan. If you already own a home, you may consider obtaining a construction-only loan initially and waiting to sell your current home to accumulate a larger down payment for a mortgage.
Construction-only loans can be a suitable option for individuals who currently have limited funds but expect to have more in the future. After completing construction, you can apply for a mortgage to pay off the loan.
One potential drawback of this type of loan is that if your financial or credit situation changes during construction, you may not qualify for a mortgage large enough to repay the loan. This can lead to new problems, including the possibility of losing your home before you even move in.
Renovation Construction Loan
Rather than helping you build something new, a renovation loan is designed to help you cover the costs of a major remodel. If you want to turn a fixer-upper into the home of your dreams, but aren’t sure if you have the money for renovations, this type of loan can help.
It’s important to note that these aren’t home improvement loans. A home improvement loan often deals with smaller remodels and is based on how much equity you currently have in the home. Renovation construction loans are about major overhauls.
Typically, you’ll get a loan big enough to cover the costs of renovations as a mortgage. You only apply for one loan, and it’s based on the likely value of the home after the remodel is finished. This can be a big help if you don’t want to try to finance the cost of upgrades after you buy the house.
Expenses Covered by Construction Loans
In general, you’ll find that most construction loans pay for various aspects of a project, including:
Obtaining the land (or the fixer-upper if you’re getting a renovation loan)
Getting the plans for the home
Applying for the permits
Paying the fees associated with construction
Contingency reserves for covering unexpected costs
Closing costs
You might also be able to have interest reserves built into your construction loan if you would rather not make interest payments while your home is being built or renovated.
The idea is that everything you need to complete your home, whether new-built or a renovation, is wrapped up in the loan.
Create a Plan for Your Custom Home
When building a home, you can’t just ask a lender for an appraisal or just get approved for a certain amount. Construction loan lenders expect to see a plan for the construction of the home.
When you apply for a home construction loan, you’ll need to let your lender know the following information:
Size of the home and the lot
Placement of the lot
Home plans (possibly include blueprints)
Materials used to build the home
Types of renovations you plan to make (for an applicable loan)
Timeline for completing the home
Contractors that will be hired
Lenders will dig into this information to decide if you’re a good risk. They want to know that the home, or the lot, will at least be worth something if you default on the loan. Part of the process is understanding that the home will at least be worth what you’re borrowing once it’s finished.
At each stage of construction, and before disbursement is made, the work will have to be inspected. If you choose a general contractor that’s experienced and respected, they can help you provide needed information to your lender, and you can be reasonably assured that they will do good work.
Qualifying for a Home Construction Loan
Now that you have a plan for your new home, it’s time to qualify for your construction loan. In many ways, the process is the same as qualifying for a traditional mortgage loan. The construction loan lender will review your financial situation and decide if you present a relatively low risk. Some of the things that a construction loan provider looks at include:
Credit score: This is the most important element of any home loan, and it’s no different with construction loans. In fact, because there might not be anything of tangible value before construction, you might need an even higher credit score. You typically need a minimum credit score of 680 to qualify, so you need to improve your credit score if you’re not there yet.
Debt-to-income (DTI) ratio: As with a regular mortgage, the lower your debt-to-income ratio, the better off you’ll be. Most lenders require that your DTI be no more than 45% of your gross monthly income.
Down payment: While you might be able to get by with 5% or less for a down payment with traditional mortgages (FHA, USDA, and VA loans famously come with much lower down payments), construction loans are a different story. You’ll likely have to put down at least 20% to make it happen. In some cases, though, as with a renovation loan, you might get away with a lower down payment.
By planning ahead and making sure your finances are in order, you have a better chance of qualifying for a construction loan.
Prepare for a Longer Closing Period
Realize that there are many moving parts to your home construction loan. It’s not just you and your lender involved. You’ve got a builder or contractor as part of the arrangement, and you’re not going to get a lump sum. Instead, the lender will evaluate you and the contractor you choose separately.
Additionally, a timeline for disbursements needs to be set up. Moreover, a lender might need to consider insurance related to the process. Plus, whether you choose a construction-to-permanent or construction-only loan matters a great deal as you negotiate with a lender about your terms.
As a result of these different aspects of construction loans, you might have to allow for a longer closing period. Additionally, you’re likely to see delays and additional costs during the building portion, so making sure you have adequate contingency reserves built into your new home is vital.
Bottom Line
With a construction loan, you can turn your dream home vision into a reality, whether building from the ground up or renovating a fixer-upper. Be aware, however, that a construction loan entails different terms and conditions.
Your lender will not simply grant you the entire loan amount without first ensuring your ability to use it responsibly. You must prove your financial capability and the viability of your construction project. Your lender will keep a close eye on the allocation of funds as the project progresses.
If you have a good understanding of how a construction loan operates, it can be a valuable tool in ensuring you achieve the home of your dreams.
See also: Is It Cheaper to Build or Buy a House?
Frequently Asked Questions
How do I qualify for a construction loan?
To qualify for a construction loan, you will typically need to have a good credit score and a sufficient amount of equity in your property (if you are building on land that you already own). You will also need to provide a detailed construction plan and budget, as well as proof of your ability to repay the loan.
How long does it take to get a construction loan?
The process of getting a construction loan can vary in length depending on the lender and the specifics of your situation. In general, it can take several weeks or even months to complete the application process and receive approval for a construction loan.
How much can I borrow with a construction loan?
The loan amount you can obtain through a construction loan is based on various factors including your credit score, the worth of the property, and your equity in the property. Usually, borrowers can expect to secure up to 80% of the property value. However, the loan amount can differ based on the lender’s policies.
How are funds from a construction loan distributed?
The distribution of funds from a construction loan is typically done in stages, based on the progress of the construction project. The lender will release funds as specific milestones are reached, such as the completion of the foundation, the rough framing, or the final inspection. This process helps to ensure that the funds are used for the intended purposes and that the construction project is proceeding as planned.
Before each release of funds, the lender may require an inspection to verify that the work has been completed to their satisfaction. The exact terms of the distribution of funds may vary based on the lender and the specifics of the loan agreement.
Are construction loans more expensive than other types of loans?
Construction loans can carry higher interest rates and fees due to the higher risk for the lender. However, the total cost of the loan will vary based on the lender, loan type, and loan terms.
Can I use a construction loan to remodel my existing home?
Yes, construction loans can be utilized for renovating an existing home too. Normally, those borrowing must present a comprehensive renovation plan, cost estimate, and demonstrate their repayment capability.
Average mortgage rates edged higher yesterday. Unfortunately, it was the sixth consecutive business day on which they’ve risen.
Earlier this morning, markets were signaling that mortgage rates today might barely move. However, these early mini-trends frequently alter speed or direction as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.15%
7.17%
Unchanged
Conventional 15-year fixed
6.57%
6.61%
-0.04
Conventional 20-year fixed
7.16%
7.19%
+0.02
Conventional 10-year fixed
6.63%
6.66%
-0.05
30-year fixed FHA
6.51%
7.19%
Unchanged
30-year fixed VA
6.61%
6.72%
-0.03
5/1 ARM Conventional
6.3%
7.39%
Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
Tomorrow’s Federal Reserve events (see below) could make a big difference to mortgage rates in the near and medium terms. But, right now, I’m pessimistic about our seeing a sustained downward trend until the summer. And some wonder if the fall might be a more realistic timeframe.
So, for now, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady again at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mixed this morning. (Neutral for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $83.18 from $81.35 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,156 from $2,159 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — dropped to 69 from 75 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Tomorrow
I covered yesterday the three Federal Reserve events due early tomorrow afternoon:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
I’ll brief you more fully on those tomorrow morning. That way you’ll know what to look out for before it’s too late to act.
Personally, I’m not very hopeful about the impact of the Fed’s events on mortgage rates. Of course, I can’t be sure what they’ll bring. But recent economic data has likely reinforced the central bank’s natural caution. And I suspect that it may signal later and fewer cuts in general interest rates this year than markets have been expecting.
If I’m right, that could be seriously bad for mortgage rates. So, let’s hope I’m wrong.
Today and later in the week
I’ll be surprised if today’s economic reports move mortgage rates much. They cover February’s housing starts and building permits. It’s not that those data are unimportant. However, they rarely attract the attention of the investors who largely determine mortgage rates.
We have to wait until Thursday for a couple of reports that sometimes affect mortgage rates. They’re two March purchasing managers’ indexes (PMIs) from S&P. One is for the services sector and the other covers manufacturing. I’ll brief you on those tomorrow morning.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Dual licensing is one of the opportunities being opened to the mortgage industry by the National Association of Realtors’ (NAR) pending nationwide settlement of commission lawsuits, according to Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA).
“There will be market reactions to this settlement, and it will create openings for other business models where we want the buyer represented, but the seller may not want to pay 3% for a buyer’s agent,” Broeksmit said on Tuesday morning during the MBA’s National Advocacy Conference in Washington, D.C.
“One of those models could be that you, as lenders, license your loan officers as real estate agents and offer the buying agent service for less than a 3% fixed fee point. And some of you will say I want nothing to do with that. Others of you will say that is a great retention opportunity for my loan officers and the market will figure all this out,” Broeksmit added.
On Friday, NAR announced a settlement that includes a $418 million payment for damages, along with a ban on rules that allow a seller’s agent to set compensation for a buyer’s agent.
The settlement also includes eliminating fields that display broker compensation on Multiple Listing Services (MLSs) and ending the blanket requirement that agents subscribe to an MLS to offer or accept compensation. In addition, buyers’ agents must have written agreements.
If approved by a court, the changes will go into effect in mid-July.
On Friday, HousingWire reported that Absolute Home Mortgage is testing out a dual-licensing structure. Matthew VanFossen, CEO of the New Jersey-based lender, said in an interview that loan officers may start getting real estate licenses, and/or buyer agents may become licensed LOs.
It would “bridge the gap in lower commission” by these professionals “starting to take both sides of the deal,” VanFossen said. But if real estate agents transition to becoming lenders, the dual-license trend would also have an “unintended consequence” for marketing servicing agreements (MSAs) between mortgage companies and real estate brokerage firms.
Tax credit, ‘junk fees,’ Marcia Fudge
Broeksmit was critical of President Joe Biden’s housing plan announced during the 2024 State of the Union address on March 7. He said the proposals would “stimulate demand on the single-family side.”
“Any lender in the audience knows that they have a huge list of people who are qualified and able to buy a house; there’s just no inventory. So, we really need to focus on the supply,” Broeksmit said.
During the State of the Union address, Biden called for a $10,000 tax credit for first-time homebuyers and people selling their starter homes.
Broeksmit said that people selling their homes would buy another, so the tax credit would not be enough to improve supply. In addition, people sell houses based on their own circumstances, not because of government tax incentives.
“So, you’re giving money to people who would have sold anyway,” Broeksmit said. “I think a smarter thing to do would be to raise the exemption for the capital gain when you sell your house.”
Broeksmit also reacted to the decision by the Consumer Financial Protection Bureau (CFPB) to closely scrutinize what it described as “junk fees” imposed on borrowers when closing a mortgage.
A recent CFPB blog post stated that families closing a mortgage “often get an unwelcome surprise: closing costs that all too often are full of junk fees.”
According to Broeksmit, the CFPB can only review fees by reopening the TILA-RESPA Integrated Disclosure (TRID) rules, which the industry spent $1 billion to implement. “There’s no such thing as a surprise at closing,” Broeksmit said.
Regarding the resignation of U.S. Department Housing and Urban Development (HUD) Secretary Marcia Fudge, Broeksmit said it’s not unusual for a cabinet secretary to leave before the end of a four-year term. In this case, “it’s a grueling job,” he added.
Average mortgage rates climbed moderately last Friday. Indeed, they rose on every business day last week. However, that followed a week of mainly falls. And those rates begin this morning close to where they were at the start of March.
First thing, it was looking as if mortgage rates today barely move. But that could change later in the day.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.12%
7.13%
+0.02
Conventional 15-year fixed
6.62%
6.65%
+0.03
Conventional 20-year fixed
7.15%
7.17%
+0.04
Conventional 10-year fixed
6.64%
6.66%
Unchanged
30-year fixed FHA
6.49%
7.17%
+0.01
30-year fixed VA
6.61%
6.72%
+0.02
5/1 ARM Conventional
6.28%
7.38%
Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
I doubt we’ll see mortgage rates enter a consistent downward trend much before the summer, and possibly later.
So, for now, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were rising this morning. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $81.35 from $80.62 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,159 from $2,162 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — nudged up to 75 from 71 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
The Fed
The Federal Reserve’s rate-setting body (the Federal Open Market Committee or FOMC) begins a two-day meeting tomorrow. And a flurry of events is scheduled for the following afternoon.
Almost nobody expects an announcement of a cut in general interest rates on Wednesday. But events that afternoon include:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
These FOMC documents and the news conference may provide new insights into how the Fed’s thinking on future cuts to general interest rates is evolving. So, markets globally will be paying the closest attention to every word written and uttered.
And there is huge potential for Wednesday’s Fed events to move mortgage rates.
I covered this in last Saturday’s weekend edition. And I’ll brief you in more detail again on Wednesday morning so you’ll know what to look out for.
Other influences on mortgage rates this week
Most of the economic reports on this week’s calendar are unlikely to affect mortgage rates. It’s not impossible. But they cover areas of the economy that rarely interest the bond investors who largely determine those rates.
Today’s lone report is a good example. It’s the home builder confidence index for February, which came in as expected. I don’t recall the last time that had a perceptible influence on mortgage rates. And the same goes for tomorrow’s housing starts and building permits, also for February.
The two reports that might move mortgage rates this week are both March purchasing managers’ indexes (PMIs) from S&P. One covers the services sector and the other manufacturing.
They’re both expected to show purchasing activity slowing modestly. But I’ll brief you more fully on what to expect on Wednesday.
Friday has no scheduled economic reports. However, three Fed speakers, including Chair Jerome Powell, have speaking engagements that day. Those could be an opportunity to reinforce messages communicated on Wednesday and to correct any misunderstandings. So, they could have an impact on mortgage rates.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
In this article (Skip to…)
>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data
Average mortgage rates fell moderately for a third consecutive day yesterday. But don’t get too comfortable. The two economic reports that are most consequential for those rates are both due over the next few days. And they could change everything.
First thing, it was looking as if mortgage rates today might fall, perhaps modestly. But that could change later in the day.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.1%
7.12%
-0.06
Conventional 15-year fixed
6.46%
6.49%
-0.08
Conventional 20-year fixed
7.03%
7.05%
-0.01
Conventional 10-year fixed
6.48%
6.51%
-0.11
30-year fixed FHA
6.11%
6.77%
-0.13
30-year fixed VA
6.43%
6.54%
-0.08
5/1 ARM Conventional
6.29%
7.36%
Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
Are the steady falls in mortgage rates we’ve been seeing in recent days the start of the sustained downward trend I’ve been predicting? It’s possible. But I doubt it.
I’m not expecting that to begin properly for at least a couple of months and perhaps longer.
So, for now, my personal rate lock recommendations are:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes ticked down to 4.08% from 4.09%. (Good for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were rising this morning. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched down to $78.53 from $78.60 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices edged up to $2,174 from $2,158 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — increased minimally to 75 from 74 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to move downward. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Today
This morning, we finally saw the February jobs report (aka the employment situation report). And it might prove less bad for mortgage rates than one might fear.
Yesterday, I described the report’s three headline figures. Here they are again with this morning’s actual figures shown in bold:
Nonfarm payrolls (the number of new jobs created that month) — Today’s actual: 275,000. Markets were expecting that to be 198,000, well down from January’s 353,000
Unemployment rate — Today’s actual: 3.9%. Markets were expecting that to be 3.7%, unchanged from January
Average hourly wages — Today’s actual: 0.1%. Markets were expecting a 0.2% rise, much lower than January’s 0.6% increase
You can see that the unemployment rate and average hourly earnings numbers would typically be good for mortgage rates. But markets tend to react to nonfarm payrolls primarily. And The Wall Street Journal (paywall) reported the data under the headline, “Hiring Boom Continues With 275,000 Jobs Added.”
Still, the news wasn’t as dire as it could have been: Two out of three ain’t bad. So, I’m hoping that markets won’t punish mortgage rates too badly.
One caveat on today’s report — and other important ones. Markets don’t always respond in the ways we’ve come to expect. Sometimes, there’s a delayed reaction. Other times, investors might discover something hidden in the minutiae of the report that changes their response. And, occasionally, they just act perversely.
Next week
Just as this week has been dominated by this morning’s jobs report, next week is likely to pivot on Tuesday morning’s consumer price index (CPI).
We’re also due February’s retail sales figures on Wednesday and various inflation and other reports. But the CPI’s likely to rule next week.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 7 report put that same weekly average at 6.88% down from the previous week’s 6.94%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.