How to Shop Around and Get the Best Mortgage Rates

If you’re wondering how to get the best mortgage rate, it’s based on your credit score, loan size, mortgage product, the location of your property, and more. Rates also vary from lender to lender — even for borrowers with the same credit score.

But if you want a shot at the best rates for your situation, we’re here to help.

1. Give your credit score a boost

Improving your credit score is one of the best things you can do to improve your interest rate. It also can increase your chances of getting a loan in the first place.

Even just a small boost in your credit score can make a big difference, too. Take a look at the recent rate data from FICO. If you had a score of 659 and were able to bump it up to 680, you could shave more than 0.60% off your interest rate.

Here are some quick and easy ways to improve your credit score:

• Pull your credit report and alert the credit bureau of any errors.
• Become an authorized user on another person’s account.
• Ask for a credit line increase (but don’t spend any of it).
• If you don’t have much credit at all, consider a secured card or credit-builder loan.

Find Out: How to Improve Your Credit Score in 5 Steps

Another great way to get a better rate is to increase your down payment. Though sometimes you can get away with a lower down payment, typically, you want to save at least 20% of the cost of your home as a down payment.

The bigger your down payment, the less your lender has to loan you — and the smaller the risk you pose. And if you’re a lower-risk borrower, you’ll probably get lower interest rates as a result.

Pro tip: Don’t drain your savings to make a larger down payment, though. You’ll still have closing costs to cover, too, and these generally cost anywhere from 2% to 5% of the total loan amount. Plus, lenders like to see two months of mortgage payments in your account at the beginning and the end of the loan process.

3. Keep your income steady (or increase it)

You want to look like a safe bet for your lender, so keep your employment and income steady before applying for your loan. Just don’t change jobs or quit yours too close to the time you’re applying for a mortgage — ideally, lenders want to see that you’re with the same employer for at least two years.

If you can increase your income in the time leading up to your loan application, that’s even better. Even just some extra income from a side gig or part-time job can be a big help.

4. Consider an ARM or 15-year mortgage

Shorter-term loans are less of a risk for a lender because they don’t have to loan the money out for so long. If you can consider an ARM or 15-year mortgage instead of a 30-year mortgage, your rates could be much lower. But keep in mind that with a shorter-term loan, your monthly payment will be higher, and with an ARM there is a risk that rates will go up during your loan term.

Just look at recent rates for the proof: Rates on 30-year fixed-rate loans were 3.71% as of January 2020, but on 15-year loans, they were only 3.19%, according to the Mortgage Bankers Association. ARM rates were just as low, coming in at 3.23%.

Find Out:

• 15- vs. 30-Year Mortgage: Which One’s Right for You?
• Interest Rate Cap: What It Means for ARMs

5. Look at first-time homebuyer programs

Many states and municipalities offer first-time homebuyer programs designed to spur homeownership in their areas. Some of these come in the form of low-interest mortgage loans, while others are grants that can help with your closing costs or down payment. Either way, they can help move the affordability needle significantly.

See: First-Time Homebuyer Tips: 10 Mistakes to Avoid

6. Consider paying points

If you have a little extra cash to work with, you can pay what are called discount points to your lender — which qualifies you for a lower rate. This is sometimes referred to as “buying down your rate.”

If you’re thinking of doing this, just make sure you consider your long-term plans first. You want to make sure you’ll be in the home long enough to reach the breakeven point — or else it might not be worth it to do this. Your breakeven point is the point at which the savings you earn from your lower interest rate outweigh the cost of your points.

Pro tip: Using a mortgage points calculator can help you determine the possible breakeven point for your loan.

7. Compare multiple lenders

The key to getting the best mortgage rate is to get quotes from several lenders. Rates can be very different from one lender to the next, so it’s important to compare at least a few before deciding who will originate your loan.

Be sure to also know how much you can afford to pay per month. You can figure this out using our monthly mortgage payment calculator below.

Credible can be a big help when you’re ready to compare mortgage loans. Check out the interest rate first, but remember that the lowest rate isn’t always the best option. You should also take into account the fees the lender charges, the APR (total annual cost of the loan), and more.

Pro tip: To get the best mortgage rate, you should compare five loan estimates. This can save you a whopping $3,000, according to Freddie Mac.

Find Out: 4 of the Best Mortgage Lenders

Other ways to get the best mortgage rate

Though the above are the most effective strategies, you can also consider buying a lower-priced home, paying down your debts to reduce your debt-to-income ratio, or bringing in a co-borrower on your loan. If you opt for the latter, just make sure they have top-notch credit and steady income first.

Finally, once you find a rate and lender you’re happy with, apply for a mortgage pre-approval and consider locking your rate in. This is especially important if you’re in a rising rate environment, as it will help you solidify that low rate while you shop around for the perfect home.

Learn More: How to Negotiate a Better Mortgage Rate