Why Mortgage Rates Vary by State: Key Factors and 2025 Data

Securing a low mortgage rate is a primary goal for most homebuyers, and where you choose to buy significantly impacts the rate you’ll be offered. While the national average provides a benchmark, mortgage rates vary dramatically by state due to local economic conditions, housing market competition, and regional risks. For buyers, understanding these factors and maintaining a strong credit score are the most effective ways to secure a favorable rate.

Why Do Mortgage Rates Differ from State to State?

Lenders assess risk on a macro level before considering individual borrower profiles. Key state-specific factors include:

• Local Economic Health: States with robust economies and strong job growth often see higher housing demand, which can influence rates.
• Housing Supply and Demand: In highly competitive markets, lenders may offer lower rates to attract more volume. As mortgage expert Brian Shahwan notes, "High competition will drive rates lower."
• Regional Risk Assessment: Lenders factor in local conditions like property values, foreclosure rates, and the overall health of the state’s housing market. "It’s less about the borrower and more about the bigger picture in that state’s housing and economic environment," explains Carl Holman of Foundation Mortgage Corporation.
• Business Overhead: Jessica Vance, a mortgage broker, points out that lower operational costs for lenders in some states can result in savings passed on to borrowers through reduced rates.

Which States Had the Lowest Mortgage Rates in 2025?

According to WalletHub data from the second quarter of 2025, the following states had the lowest average rates for a 30-year fixed-rate mortgage. This data highlights the significant geographical disparities.

Alabama, while not in the top five, saw the largest rate decrease from the first quarter to the second quarter of 2025, dropping to an average of 4.82%. It's important to note that these averages are influenced by the financial profiles of borrowers in those states, who may have higher average credit scores and be more likely to shop around for the best deal.

What Factors Can You Control to Get a Better Rate?

While you can't change your state's economy, you can optimize your personal financial profile. Lenders evaluate these key borrower-specific factors:

• Credit Score (FICO): This is a critical component. A higher score typically qualifies you for a lower interest rate.
• Debt-to-Income Ratio (DTI): This measures your monthly debt payments against your gross income. A lower DTI is more favorable to lenders.
• Loan-to-Value Ratio (LTV): A larger down payment results in a lower LTV, which reduces the lender's risk and can lead to a better rate.
• Property Type and Use: Rates for a primary residence are often lower than for a secondary home or investment property.

Is a Fixed-Rate Mortgage Always the Best Choice?

A traditional 30-year fixed-rate mortgage locks in your interest rate for the entire loan term, providing payment stability. However, based on our experience assessment, it's not always the optimal product. Many borrowers sell or refinance long before the 30-year term ends.

For these individuals, an adjustable-rate mortgage (ARM) can be advantageous. An ARM typically starts with a lower introductory rate for a set period, such as 7 or 10 years. "As rates drop significantly, the likelihood is that you will want to do a refi, so you may as well take advantage of the best rate offerings now," suggests Sarah DeFlorio, Vice President at William Raveis Mortgage. This option is best for those comfortable with some future rate uncertainty.

How Should You Prepare for Homeownership Beyond the Mortgage?

Becoming a homeowner introduces new financial responsibilities. Beyond securing a competitive mortgage rate, it is crucial to budget for unexpected costs. Experts universally recommend establishing a rainy-day fund for emergency repairs and maintenance. Proper preparation ensures you can handle the inevitable surprises of homeownership without financial strain.

To secure the best possible mortgage rate, focus on improving your credit score, comparing offers from multiple lenders, and understanding how your state's market influences available rates.