How to Get the Best Mortgage Rate: 9 Data-Backed Strategies

Securing the best mortgage rate is achievable by focusing on the key financial factors lenders evaluate. Based on our experience assessment, the most effective strategies include improving your credit score, comparing offers from multiple lenders, and increasing your down payment. These actionable steps can lead to significant long-term savings, potentially tens of thousands of dollars over the life of your loan. This guide details nine proven methods to strengthen your application and secure a competitive interest rate.

How Does Your Credit Score Affect Your Mortgage Rate?

Your credit score is a numerical representation of your creditworthiness, and it plays a crucial role in determining your mortgage interest rate. Lenders view a higher score as an indicator of lower risk, which translates to more favorable loan terms.

To improve your credit profile:

• Obtain a copy of your credit report from AnnualCreditReport.com and dispute any inaccuracies.
• Ensure all recurring bills are paid on time and in full.
• Reduce your credit utilization ratio (the amount of credit you use compared to your limit) to below 35%.
• Avoid opening new credit accounts or making large credit-based purchases in the months before applying for a mortgage.

While some loan programs accept scores as low as 500, a score of 740 or above typically qualifies for the best available rates.

What Is the Impact of a Larger Down Payment?

A larger down payment directly reduces the lender's risk, often resulting in a lower interest rate. Furthermore, a down payment of 20% or more on a conventional loan (a mortgage not backed by a government agency) allows you to avoid Private Mortgage Insurance (PMI), an additional monthly cost that protects the lender.

To save for a larger down payment faster, consider setting up automatic transfers to a dedicated savings account, cutting unnecessary expenses, or exploring down payment assistance programs available in your state.

Why Should You Compare Offers from Multiple Lenders?

One of the most impactful steps is to shop around for lenders. Mortgage rates and fees can vary significantly between banks, credit unions, and online lenders. A difference of just 0.25% in your interest rate can save you over $15,000 on a 30-year, $300,000 loan.

When comparing offers:

• Get quotes from at least three different types of lenders.
• Compare the Annual Percentage Rate (APR), which includes the interest rate plus other loan costs, for a true cost comparison.
• Inquire about all associated fees, including origination charges and closing costs.

You can typically shop around within a 14-45 day window without it negatively impacting your credit score, as multiple inquiries for the same purpose are often counted as a single event.

Is Buying Mortgage Points a Good Strategy?

Buying down your interest rate, also known as purchasing discount points, involves paying an upfront fee at closing to secure a lower rate. Each point typically costs 1% of your loan amount and reduces the rate by about 0.25%. This strategy is beneficial if you plan to stay in the home long enough to reach the break-even point—when the monthly savings exceed the upfront cost.

What Loan Options Can Lead to a Lower Rate?

Familiarizing yourself with different mortgage types can reveal options with lower rates. Key loan types include:

• FHA Loans: Insured by the Federal Housing Administration, these are popular with buyers who have lower credit scores.
• VA Loans: Available to eligible veterans and service members, these loans often feature competitive rates and require no down payment.
• USDA Loans: Designed for homes in eligible rural areas, these loans may offer low rates with no down payment.

First-time homebuyer programs often provide grants or favorable terms that can effectively lower your borrowing cost.

How Can a Co-borrower or Co-signer Help?

Applying with a co-borrower (who shares ownership) or a co-signer (who does not) who has a strong credit profile and stable income can improve your application's strength. This combined financial profile may help you qualify for a better rate than you could obtain alone.

To maximize your chances of securing the best mortgage rate, focus on the factors within your control. Strengthening your credit, saving for a substantial down payment, and thoroughly comparing lender offers are the most reliable methods. Before closing, discuss a mortgage rate lock with your lender to protect your agreed-upon rate from market increases during the final processing stages.