New study: Mortgage rate quotes vary most for low-credit borrowers, VA loans

September 25, 2019 - 2 min read

Low-credit borrowers see wide mortgage rate spreads

It’s no secret that shopping around for your mortgage rate can save you big. But if your credit score is on the lower end? New data shows it can save you even more.

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How credit score impacts the mortgage rate spread

According to a new analysis from Zillow, the gap between highest and lowest mortgage rate quotes is widest for lower-credit score borrowers. In fact, for borrowers with scores between 620 and 639, quoted mortgage rates varied by as much as 133 basis points — or 1.33 percent — between lenders.

To put this into perspective, our mortgage calculator shows that on a home priced at $250,000, a 4 percent interest rate would mean a monthly payment of $955 per month. At 1.33 percent higher? You’d pay $1,090 — nearly $100 more. That’s $1,200 a year (and significantly more paid toward interest.)

Borrowers with prime scores (760 or higher) still see their mortgage rates vary by lender, but not as widely. This cohort sees a spread of about 92 basis points, or 0.92 percent.

As Zillow’s research team concludes, “Clearly, it benefits borrowers of all types to explore their options before committing to a loan. But shopping around may have the most benefits for those borrowers with the lowest credit scores, since they’re most likely to see the biggest differences between the lowest and highest rates they’re offered.”

Shopping for a mortgage: How many mortgage quotes do I need?

Loan type and location matter, too

What type of loan you apply for can also impact how much your mortgage rates diverge. Borrowers applying for VA loans see the widest rate spread, with quotes varying as much as 109 basis points or 1.09 percent.

Conventional loans vary as much a 0.97 percent, while jumbo loans vary up to 0.86 percent, the analysis found. Jumbo VA loans see the smallest rate variance among lenders.

The market you’re buying in also plays a role, with rate spreads the widest in Baltimore, San Francisco, Dallas, Seattle and Los Angeles.

Rate shopping is especially effective in these U.S. cities

In Baltimore, borrowers with credit scores under 680 can see a rate variance as big as 1.55 percent — the largest among all major metros.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.