Snagging the lowest mortgage rate possible can mean saving thousands of dollars over the life of your loan. For example, if you locked in a 4.0% mortgage interest rate rather than a 5.5% rate for a 30-year, fixed-rate mortgage loan of $200,000, you could save more than $65,000 over 30 years.
But how do you qualify for the best mortgage rates?
Understand and act on the factors that influence mortgage rates today:
1. Deal with your personal financial situation.
Get your personal finances in order. Focus on these areas:
- Take steps to achieve an excellent credit score, aiming for approximately 740 or above. Experts recommend that you correct any errors, pay bills on time, and pay down balances.
- Reduce your debt-to-income ratio (projected mortgage payments plus other loan payments divided by gross income), targeting a level of 36% or below. Consider paying down non-mortgage debts before applying for a mortgage loan.
- Save money for a down payment to keep your loan-to-value low, which is especially important for conventional loans. Ideally, set aside 20% for your new home.
2. Choose the type of mortgage and loan structure with the lowest mortgage rate.
The type of mortgage and its structure impacts your interest rate. Depending on your financial circumstances and goals, consider doing one or more of the following to get one of the best mortgage rates available:
- Sign up for a shorter term and/or adjustable rate mortgage. Typically, you’ll find lower mortgage rates on 15-year fixed-rate mortgage loans than 30-year ones. For a cheaper yet riskier alternative, choose an adjustable-rate mortgage; keep in mind that to get the lowest mortgage rate today, you may need to accept higher rates in the future (after the fixed rate expires).
- Pay points (that is, pay more money upfront) to get a lower interest rate.
- Compare best mortgage rates between conventional and government-backed (FHA/VA) loans. Generally conventional loans carry lower mortgage interest rates.
3. Buy a property pleasing to your mortgage lender.
Lower risk to your mortgage lender typically means a better interest rate for you. Keep in mind the types of properties that please the lender as much as yourself:
- Buy or refinance a mortgage on a single-family home as this type of property tends to carry lower mortgage rates, compared to a condominium or townhome.
- Snap up a property that is priced below its certified appraised value, which can benefit the loan-to-value ratio without requiring extra savings on your part for a down payment.
- Buy a smaller home or make a large down payment on a bigger house so you can avoid getting a jumbo mortgage (a loan that exceeds $417,000 or more, depending on the market), which may carry a higher interest rate.
4. Work with the right mortgage broker and lender to get the best mortgage rates.
Finding a suitable mortgage broker and lender is a critical step in snagging the best mortgage rates. Take steps to find someone who clicks with your personality and financial style:
- Stay up-to-date on mortgage interest rates today by visiting financial news sites or your local bank branch’s website, realizing that these are often the best mortgage rates available (and may or may not be available to you).
- Get a referral from real estate professionals and friends to find mortgage lenders who are responsive to borrower needs and work effectively with lenders.
- Communicate with your broker and/or lender about your requirements and make sure you meet their guidelines to find the best possible rates.
General economic conditions dictate the range of current mortgage rates. But your actions can influence the lowest mortgage rates you’ll get within that range.
Keep in mind that there may be trade-offs involved in snagging the best mortgage rates possible. For example, you may get a lower rate by paying mortgage points and agreeing to an introductory adjustable rate; but these scenarios may not benefit you in the long run. However, improving your credit score, paying off credit card balances to lower your debt-to-income ratio, and buying a home with an attractive value can help you get the best possible rate plus maintain your financial well-being.