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How to get the best mortgage rate
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By Amy FontinelleEdited by Reina MarszalekReviewed by Mike Schmidt
Amy Fontinelle is one of Credible's go-to mortgage contributors. She has covered personal finance — including home loans and refinancing, real estate and insurance — for nearly two decades.
Reina Marszalek is Credible's senior mortgage editor and is an experienced multimedia content creator. She previously served as a managing editor at Policy Genius, where she covered the insurance and home verticals.
Mike Schmidt is Credible's senior manager of mortgage operations and is a licensed mortgage loan originator in 50 states. Mike has spent 18 years in the industry, working at various financial institutions. He has expertise in all mortgage products, including conventional, FHA, and VA loans.
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By Amy FontinelleEdited by Reina MarszalekReviewed by Mike Schmidt
Amy Fontinelle is one of Credible's go-to mortgage contributors. She has covered personal finance — including home loans and refinancing, real estate and insurance — for nearly two decades.
Reina Marszalek is Credible's senior mortgage editor and is an experienced multimedia content creator. She previously served as a managing editor at Policy Genius, where she covered the insurance and home verticals.
Mike Schmidt is Credible's senior manager of mortgage operations and is a licensed mortgage loan originator in 50 states. Mike has spent 18 years in the industry, working at various financial institutions. He has expertise in all mortgage products, including conventional, FHA, and VA loans.
Shopping around and getting loan estimates from at least three to five lenders is essential whether you’re a first-time homebuyer or refinancing an existing loan. Comparing offers will help you see what interest rate and fees are reasonable for your circumstances and to choose the best offer.
To make the most accurate comparison among lenders, provide identical information to each one. Also, submit all your applications within a few hours of each other, since market conditions cause mortgage rates to change multiple times a day.
It’s best to avoid applying for other forms of credit immediately before, during, or after applying for a mortgage. New loans or credit lines could hurt your credit score or increase your debt-to-income ratio, and could make it harder to qualify for a home loan.
There are a few main types of home loans to choose from:
- Conventional loan: The most popular type of home loan by far is a conventional loan with a down payment of 3% or more. It’s a good fit for borrowers with a good credit history (620), minimal debt, and stable employment. You can use these types of loans to finance most kinds of properties, including primary residences and vacation homes. These loans have a fixed interest rate and 30-year term; though shorter terms are also available. Your monthly principal and interest payment stays the same for the life of the loan.
- Jumbo loans: These loans are generally best for borrowers interested in more expensive homes. You need to have excellent credit (700 is generally required), minimal to no debt, and a down payment of at least 10% to 20%.
- FHA loan: These loans are backed by the Federal Housing Administration (FHA). If you can only afford a smaller down payment (usually 3.5% or more) and have a lower credit score, an FHA loan might be your best bet. FHA loans have fixed or adjustable-rate options and a 30-year term. It’s designed to help people with a credit score below the 620 required for a conventional loan.
- VA loans: Backed by the Department of Veterans Affairs (VA) and available to eligible U.S. military service members, veterans and surviving spouses, VA home loans don’t require any down payment and have flexible credit score requirements. Like FHA and conventional loans, the interest rate is generally fixed and the most popular term is 30 years.
- USDA loans: The U.S. Department of Agriculture backs these loans designed to assist borrowers with low-to-moderate income. They also encourage rural area development, however, you must purchase a home in a USDA-eligible area. They accept credit scores as low as 620 and no down payment is required.
| Type | Loan term | Lowest interest rate | Down payment | Offered by |
|---|---|---|---|---|
| Conventional | 10,15, 20, 30 | 5.75% | 3% or more | Private |
| Jumbo | 15, 20, 30 | 6.31% | 10% to 20% | Private |
| FHA | 30 | 7.25% | 3.5% to 10% | Government |
| VA | 30 | 6.75% | Not required | Government |
| USDA | 15, 30 | 6.41% | Not required | Government |
*Rates as of May 9th, 2023
No single home loan will be the easiest for every borrower to qualify for. However, a mortgage broker can help you discover which type of home loan would be easiest for you to qualify for and choose the best offer from multiple lenders with a single application.
Here are a few examples of how a particular loan type might be the easiest for a particular person to qualify for:
- If you are an eligible U.S. military service member, veteran or surviving spouse, a VA loan will probably be the easiest to qualify for. You don’t need any down payment and you don’t have to pay the monthly mortgage insurance premiums that most loans require when you put down less than 20%. However, most borrowers will have to pay a funding fee up front or roll it into the loan.The VA, which partially guarantees these loans to encourage lenders to offer them, doesn’t have a minimum credit score requirement, either. However, lenders often require a credit score of at least 620 for a VA loan.
- If you don’t qualify for a VA loan, an FHA loan may be the next-easiest to qualify for. It requires you to put at least 3.5% down and pay an upfront mortgage insurance premium. You’ll also be responsible for monthly mortgage insurance premiums for the life of the loan.Similar to VA loans, the FHA partially guarantees these mortgages to encourage lenders to make them, and the FHA only requires borrowers to have a 580 credit score when they put down at least 3.5%, or 500 when they put down at least 10%. However, some lenders might require a higher score, such as 620.
- A third type of loan that can be relatively easy to qualify for is a conventional mortgage for low- to moderate-income homebuyers. These loans require a credit score of at least 620 and a down payment of at least 3%. Examples include Freddie Mac’s Home Possible loan and Fannie Mae’s HomeReady loan. Even though they require private mortgage insurance, you’ll be able to get rid of it once your equity reaches 20%.
A mortgage rate is the annual interest, expressed as a percentage, that you’ll pay to borrow money to buy a home. Some mortgages have variable rates, but almost all of them have fixed rates.
For example, with a fixed mortgage rate of 4%, you would pay $4,000 in interest to borrow $100,000 for one year. Assuming you also made monthly principal payments, your principal in year two would be less than $100,000 and your interest would be less than $4,000, even though your mortgage rate was still 4%.
Your mortgage rate does not include the fees associated with taking out the loan: that figure is called annual percentage rate (APR) and is usually higher.
When you're shopping for a mortgage loan, you’ll be presented with both the interest rate and an APR.
The interest rate charged by the lender is the primary cost of borrowing money. It's how much you pay in interest charges each year when you take out a home loan, expressed as a percentage. The lower the interest rate, the lower your monthly payments and total repayment costs — all else being equal.
However, the mortgage interest rate doesn’t reflect the total cost of credit, including points, the origination fee, mortgage broker fees, and other charges you may pay when taking out a home loan.
The APR, however, includes these costs of credit. Think of the APR as the total rate you’ll pay for the loan, or the effective interest rate over the life of your mortgage; it’s the rate you’ll pay when you factor in the points, fees, and other charges you pay for the loan. This allows you to compare rates between loans and lenders, as some have more fees than others.
Comparing mortgage rates
When shopping for today’s mortgage rates, it's a good idea to compare the interest rate to the APR. The more fees and expenses you’re being charged, the greater the difference between the interest rate and APR. The best way to understand the difference between the interest rate and the APR is that if a loan had no fees, then the interest rate and APR would be the same.
After you submit your online application, you'll receive a disclosure called a loan estimate. When comparing your loan options, look for the interest rate on page one under “Loan Terms,” and the APR on page three under “Comparisons.”
If you're considering an adjustable-rate mortgage — an ARM loan — remember that both the interest rate and the APR can increase (or decrease), along with your monthly mortgage loan payments and total repayment costs.
Learn More: What is a Mortgage Rate and How Do They Work?
There’s no one place to find the best mortgage rates because every borrower’s situation is different. If you want a VA loan for a home in California, the company with the best mortgage rates will likely be different than if you’re looking for a conventional loan on a property in Florida.
This is why the advice you’ll repeatedly read about how to get the best mortgage rates is to shop around and get quotes from multiple lenders. The best type of quote is a preapproved quote where the lender reviews your finances and gives you an official loan estimate.
If you provide a complete and accurate picture of your finances, you should be able to get a very accurate mortgage rate quote. It won’t be guaranteed until you lock your rate, however. You can usually lock your rate any time between application and a few days before closing.
See Also: How to Get the Best Mortgage Rates
Interest rates can change multiple times daily. For this reason, any advertised rate on a lender’s website, even one customized for location, down payment, credit score, and loan type, quickly becomes outdated.
Since rates change so often and depend on a borrower’s specific circumstances, some lenders prefer to give potential customers an individualized quote rather than advertise rates that any given customer is unlikely to get.
Rate lock
Once you are ready to accept a loan offer, you may want to secure the rate by requesting a “rate lock.” If it's not locked, it can change at any time.
Lenders typically offer rate locks for periods of 30, 45, or 60 days. If you need to extend a rate lock, you may be charged an extension fee.
Even if your rate is locked in, your rate may change if your credit score or other information you provided changes when the lender goes to verify that information (your income or your debt-to-income ratio may change, for example). Your rate can also change if you decide to get a different type of loan or make a smaller down payment.
Getting a mortgage rate quote may impact your credit, depending on whether the lender does a soft credit pull or a hard credit pull.
- A soft credit pull does not impact your credit score. A lender might perform this type of credit pull for a customer who is just gathering information but isn’t ready to submit an application.
- A hard credit pull does impact your credit score. Typically, it temporarily lowers your score by a few points. A lender will perform this type of credit pull when you submit an application.
Submitting multiple mortgage applications within 45 days should have the same impact on your credit score as submitting a single application in that time frame, according to the Consumer Financial Protection Bureau. This means you can shop around for a home loan with little harm to your credit.
The credit score you need depends on the type of mortgage you’re applying for. USDA and VA loans have no minimum score requirement. FHA loans require a score of at 500 with 10% down and 580 with 3.5% down. Conventional loans typically require a score of at least 620.
Lenders can and often do require borrowers to have higher scores than these minimums. Also, they typically offer their best rates only to borrowers with very good to excellent credit scores of 760 to 850.
For home loans that aren’t government backed or sold to Fannie or Freddie, lenders can freely set their own credit score requirements. You may be able to get a loan with a score as low as 500 with some lenders if other aspects of your finances, like your debt-to-income ratio and cash reserves, are strong.
To qualify for a home loan, you submit an application and documentation about your finances to a mortgage lender. The application asks for your identifying information, how much you want to borrow, the address or ZIP code of the property you want to finance, and the property’s estimated value.
You’ll also need to submit recent bank statements and tax returns — or give the lender permission to access your bank records electronically and order your tax returns from the IRS. In addition, you’ll give the lender your Social Security number and allow them to pull your credit report and score.
Depending on the lender, you can handle these tasks entirely online, by phone, in person or through a combination of these methods. Once the lender has the information it needs, a loan officer will be able to tell you whether you meet the company’s guidelines to get a home loan.
Learn More: How to Apply for a Mortgage
Getting a mortgage pre-approval is similar to qualifying for a mortgage, but faster and easier. You’ll complete an application online, by phone or in person with your name, address, credit score and other key personal information. The lender will pull your credit report and score and request your recent bank statements and proof of income.
Once you've compared rates from multiple lenders and selected an option that's right for you, you'll be asked to verify your identity and income when you apply. Documents you may be asked to provide include:
- Driver’s license
- Social Security card
- Your two most recent bank statements
- Signed tax returns for the last two years
- Two years of W-2 forms
- An estimate of your home value (an appraisal or recent sale price)
- Documentation of the source of funding for your down payment (for home purchase mortgages)
- For new home purchases, you’ll also need to submit the home purchase contract (a legal agreement which dictates the sale of a property and its terms and conditions for making a purchase).
If your application relies on income from sources other than a job, such as self-employment or rental income, you'll need documentation showing you can expect to continue receiving it.
It might be a good idea to get a home loan if you’re currently renting and, for lifestyle or financial reasons, you’d rather own a home. Most people can’t pay cash for a home, so getting a home loan, also called a mortgage, is the only way to become a homeowner.
If you’re thinking about getting a home loan, it’s important to consider how stable your life and personal finances are. The time and cost to buy a house (and later sell it) usually don’t make short-term home ownership worth it for most people. Also, it’s important to have a reliable income, steady expenses and manageable debt before you commit to a mortgage. If you can’t keep up with the expenses of home ownership, you could lose your home and ruin your credit.