It’s not just the Fed driving up your mortgage rate

Buyers this spring say they are resigned to the fact that the Federal Reserve won’t give them a helping hand by lowering rates. The central bank, which meets this week, is likely waiting for inflation to ease first. Mortgage rates tend to track the 10-year Treasury yield, which has risen for four straight weeks.

But the Fed isn’t the only factor influencing mortgage costs. Give your financial information to two different lenders, and you may receive very different quotes that mean saving or losing tens of thousands of dollars. That variation has grown since the Fed started lifting rates in 2022.

“It’s very common to find a half-point difference between lender A and lender B, just by making a couple phone calls," said Michael Lorino, a real-estate agent with AssumeList in Alexandria, Va.

Optimal Blue, a mortgage technology and data company that processes rate locks for roughly a third of residential mortgages, analyzed its data to show a few of the variables baked into your rate. They range from credit scores to geography to the company that extends your loan.

The 800 club

The payoff for having a great credit score has grown as rates have risen.

People with scores of 800 or more locked in an average rate of 7.15% last Thursday, compared with the broader average of 7.27%. The rate differential has sometimes been more than a quarter of a percentage point.

That may suggest borrowers with higher scores are more aggressively shopping for rates, according to Brennan O’Connell, director of data solutions at Optimal Blue.

Research has found that financially savvy borrowers tend to lock in the lowest rates. Academics and regulators have urged buyers of all credit types to shop around. The Consumer Financial Protection Bureau has a tool that shows the range of rates available to buyers.

State-by-state

Mortgage rates, like everything in real estate, come down to location. Similarly situated buyers in Iowa and New Hampshire might lock in rates that differ by half a percentage point, Optimal Blue data show.

It’s hard to explain why rates vary from state to state, economists say. But there are differences between regions that can affect rate, such as the financial sophistication of the population, or state regulations and taxes.

Who’s your lender?

The first step for a mortgage shopper is figuring out where to go for a quote. Credit unions, banks and mortgage companies all offer home loans, but their rates often differ based on how much they want your business.

Not-for-profit credit unions on average offer the lowest rates. Mortgage companies are a bit higher, and banks are currently the highest.

A few years ago, banks were offering lower rates than mortgage companies, Optimal Blue data showed. But it has flipped. This mirrors a broader shift where once-dominant banks have ceded market share to mortgage companies.

Banks became less aggressive about chasing mortgage business after the financial crisis of 2008. Mortgage companies made 71% of originations in the first nine months of 2023, according to industry research group Inside Mortgage Finance.

Fannie and Freddie

Roughly half of home loans end up in the hands of Fannie Mae and Freddie Mac. The two companies don’t extend loans but buy them from lenders and package them into securities to sell to investors.

There are federal guidelines for how Fannie and Freddie should price mortgages to compensate for the risks embedded in them. Mortgages for primary residences, for example, tend to have lower rates than loans for investment properties.

Even small changes in that pricing can have big consumer impacts. In early 2022, Fannie and Freddie’s regulator announced new costs for loans attached to second homes. Second-home loan rates had been similar to primary-residence rates, but after the announcement, they rose to more closely resemble the higher investment-property rates.

Write to Ben Eisen at ben.eisen@wsj.com