Getting a Mortgage at 7 Percent, and How to Prepare for It
Rates have eased a little but remain above 7 percent, and the Fed isn't in a hurry to cut. Here's what lenders look at now, what a loan really costs, and the steps that make the biggest difference.
Mortgage rates have come down slightly this fall, but buying with a loan is still expensive. Freddie Mac's average 30-year fixed rate was 7.24 percent on October 29, and the 15-year was 6.60 percent. With inflation running around 3.6 percent and the Federal Reserve holding its benchmark rate at 3.75 to 4 percent, two officials even voting to raise it, few forecasters expect a quick drop. Mortgage rates follow the 10-year Treasury yield, which was back above 5 percent this week, rather than the Fed's rate directly.
What that means in dollars: on a $400,000 home with 10 percent down, a $360,000 loan at 7.24 percent costs about $2,450 a month in principal and interest, before taxes and insurance. At 6.24 percent, one point lower, it would be about $2,215, a difference of roughly $240 a month and more than $85,000 over 30 years. A 15-year loan at 6.60 percent saves far more in interest but costs about $3,155 a month. Property taxes, homeowners insurance and, with less than 20 percent down, private mortgage insurance come on top; insurance in particular has risen sharply in many states. Our mortgage payment calculator, which uses Freddie Mac's latest rate, lets you try your own numbers.
What lenders look at hasn't changed much, but each piece matters more when rates are high. Your credit score sets your rate: the best pricing generally goes to scores around 740 and up, and FHA loans allow 3.5 percent down with a score of 580 or higher. Lenders also compare your total monthly debt payments, including the new mortgage, with your gross income; many look for 43 to 45 percent or less, though some programs allow more. They'll want two years of steady income, recent pay stubs, tax returns and bank statements, and an explanation for large deposits. For 2026, loans up to $832,750 in most of the country, and up to $1,249,125 in high-cost areas, are conforming loans that Fannie Mae and Freddie Mac can buy; bigger loans are jumbo loans with stricter rules.
How to prepare: Check your credit reports for free at AnnualCreditReport.com and fix errors months before you apply, and avoid opening new credit or financing a car while you shop. Save for more than the down payment; closing costs are commonly estimated at 2 to 5 percent of the loan amount, and your Loan Estimate will list yours; you'll want cash left over for repairs. Get preapproved, not just prequalified, so sellers take your offer seriously. Then compare at least three lenders: each must give you a standard Loan Estimate within three business days of your application, which makes rates, points and fees easy to compare side by side. Ask about a rate lock, its length and its cost, and whether paying points (each point costs 1 percent of the loan and buys a lower rate) makes sense for how long you'll stay.
A few other things to know. Adjustable-rate mortgages start lower but can rise after the fixed period, so understand the caps before choosing one. If you put less than 20 percent down on a conventional loan, you can ask to cancel private mortgage insurance once your balance reaches 80 percent of the home's original value, and it ends automatically at 78 percent. And plan around the rate you can get today: refinancing later may be possible if rates fall, but it costs money and isn't guaranteed.
This is general information, not advice for your situation; a HUD-approved housing counselor can review your plans for free or at low cost.
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