How Are Mortgages Rates Built?

Ever wondered how mortgage rates are built?

Different classes of loans have different ways the loans are built.

How FHA Credit and Pricing Work

• Flat Pricing: Unlike conventional loans (backed by Fannie Mae or Freddie Mac), FHA does not charge risk-based credit score pricing adjustments or rate penalties depending on where your credit score falls within their eligible range. 

• Mortgage Insurance Premium (MIP): FHA charges a flat annual mortgage insurance rate (and an Upfront Mortgage Insurance Premium, or UFMIP) that does not change or tier up/down based on whether you have a 580, 620, or 740 credit score.

• Credit Score Requirements & Down Payments:

  • Score of 580 or higher: Eligible for maximum FHA financing, which is a 96.5% LTV (requiring a 3.5% down payment).

  • Score between 500 and 579: Limited to a maximum 90% LTV (requiring a 10% down payment).

  • Score below 500: Generally not eligible for FHA loans.

Now let's look at conventional mortgages for Fannie Mae.

The following tables show Loan Level Pricing Adjustment rate matrix overlays/adjustments for all mortgages sold to Fannie Mae. 

To see the whole sheet, please visit https://singlefamily.fanniemae.com/media/9391/display  (Updated September 30, 2026)

What does this mean? 

Let's say a borrow have a down payment of 94% and credit score of 685. Then their rate is par + 1.375%.

Now, interestingly, every lender has different "specials" or promotions they run to skew those percentages a little bit. It is all based on how each lender wants to influence it's risk. And that is the #1 reason to shop a few lenders - they also have different pricing at the lender level.

And if you are putting less than 20% down, here is how your credit affects the mortgage insurance:

All good info to know!

Just remember, every broker or mortgage loan officer is different and has access to different programs to price out loans!