Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.
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.
Here’s how to get the best mortgage rate:
- Give your credit score a boost
- Save up a solid down payment
- Keep your income steady (or increase it)
- Consider an ARM or 15-year mortgage
- Look at first-time homebuyer programs
- Consider paying points
- Compare multiple lenders
1. Give your credit score a boost
“Credit score and loan-to-value ratio are probably the two most important factors in getting the best rate.” -Michele Skipper, Senior Loan Officer and a Credible mortgage expert
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.
2. Save up a solid down payment
“Your down payment directly impacts your loan-to-value ratio, so it’s very important when you’re seeking the best rate.” -Michele Skipper
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.
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.
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.
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 outweighs the cost of your points.
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.
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.
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.
Usually you’ll need to get many pre-approvals which can take up too much of your time. But with Credible, you can complete your mortgage pre-approval in just a few minutes and easily update it if any of your terms change — without having to fill the whole form out again. Plus, all of this uses a soft credit pull, which won’t affect your credit.