Qualifying for the best mortgage rate can help you save thousands of dollars a year. Shopping around, exploring different types of mortgage loans, and taking steps to look low-risk to lenders all help. Here, we offer five tips to increase your odds of getting the lowest rate you can. 

If you’re thinking of buying a house this year, you’re probably doing a bit of prep work. You might have started to explore neighborhoods you think might be a good fit. You’re probably saving up for a down payment or making a plan to sell your current home. And you should definitely add one more task to your list: shopping around to find the best mortgage rate. 

Rates are higher than they were a few years ago, but that doesn’t mean you can’t find a good one. If you take a few proactive steps, you significantly increase your chances of finding the best mortgage rate for your specific scenario. Data from the Consumer Financial Protection Bureau says that can save you as much as $100 a month. 

Doing a little work to find the best mortgage rate, then, can quite literally pay off. Here are five tips you can use to navigate the current rate environment and find your best rate. 

#1: Shop around for the best mortgage rate

If you only get a rate quote from one mortgage lender, you’ll never know if you could have saved money by going with another company. As a result, it’s best practice to get quotes from multiple lenders to see who can offer you the best rate.

This doesn't have to be a major lift. Rate comparison tables can give you a feel for what’s available and even highlight some lenders who might be a good option for you. That way, when you do get a quote, you can compare it against both the industry average and the other quotes you get. 

When you’re comparing options to find the best mortgage rate, make sure you look at different lenders’ annual percentage rates (APRs). 

This percentage represents the cost you’ll pay for the loan each year, expressed as a percentage of your total loan amount. That includes not just the interest rate, but also the fees the lender charges. 

Comparing APRs helps you make sure you don’t get lured in by a lender who offers a low interest rate but more than makes up for it in hefty fees. 

The U.S. Department of Housing and Urban Development (HUD) has a handy mortgage shopping worksheet you can use here. Once you narrow down to your top two options, filling in the lines on that form will help you get a clear picture of which option’s best for you. 

#2: Explore different mortgage options

A 30-year fixed-rate mortgage isn’t the only loan for getting a home loan. And looking at other loan types might help you uncover the best mortgage rate.

For starters, look at different types of federally backed mortgages. Those include loans guaranteed by the:

• Federal Housing Administration (FHA loans)
• Department of Veterans Affairs (VA loans)
• U.S. Department of Agriculture (USDA loans) for homes bought in an “eligible rural area”

If you’re a candidate for any of those loans, the federal backing can benefit you. Specifically, the guarantee the government agency provides for your lender helps to offset risk for them. As a result, you might be able to get a lower interest rate. 

Even if a federally backed loan isn’t a good fit for you, you can explore different loan terms (how long the loan lasts) and types of interest rates. 

If you could pay off the mortgage in 15 years instead of 30, for example, the lender will offer you a lower interest rate. And if you’re okay with some risk, you should check out adjustable-rate mortgages (ARMs). These start with lower rates than fixed-rate loans. 

You won’t know you’ve found the best mortgage rate until you explore different loan types to see which is right for you. 

#3: Know what lenders care about

If you want to get the best interest rate, you need to make yourself look as good as possible in the eyes of mortgage lenders. 

When you apply for a loan, each lender is going to try to form a picture about the kind of person you are. They don’t care about your hobbies or anything like that. Instead, they want to understand how you handle your money. 

For mortgage lenders, their business centers around managing risk. People who look like they might not pay back their loan are deemed high-risk, and they consequently get charged a higher interest rate. The reverse is also true, though. Lenders reserve the best mortgage rate offerings for people who look like they’re financially stable and good with their money. 

You can help yourself look financially responsible and worthy of a low interest rate. That means putting some effort into your:

• Credit score: This three-digit number tells lenders a lot about how you’ve managed past debt. Your credit score takes into account how you’ve handled other money you’ve borrowed, like student or car loans and credit card balances. A good score means you’ve been consistent about repaying your loans and you’ve used your credit wisely. That helps lenders think you’re likely to repay your mortgage, too. Pay your bills on time, avoid getting close to your credit limits, and check your credit report for errors. All of those steps can help you boost your credit score — and your likelihood of getting the best mortgage rate. 
• Debt-to-income (DTI) ratio: If too much of your monthly income will go toward debt obligations — including your mortgage — lenders see you as risky. To calculate your DTI ratio, add up all of your monthly debt obligations (e.g., housing costs, credit card bills, student loans, car payments). Divide that by your gross monthly income (your take-home pay before taxes). Multiply that by 100 to arrive at your DTI ratio expressed as a percentage. Most of the time, lenders want to see this result below 36%, but some will offer loans with a DTI of up to 50%. The higher your DTI, though, the less likely you are to qualify for the best mortgage rate. 
• Steady employment: With a consistent income stream, you’re more likely to make your monthly mortgage payments. That’s why lenders want to see a history of consistent employment. 

Lenders also care about how much money you put down, so let’s look at that next. 

#4: Save for a bigger down payment

Lenders like to see a bigger down payment. It shows them that you were responsible enough to save up for that sum, and it lowers your loan-to-value (LTV) ratio. A lower LTV means that if you stop repaying your loan, the lender’s more likely to be able to fully recoup their losses by selling your house. 

As a result, if you want the best mortgage rate, it might make sense to wait and save up a little more.

That said, you shouldn’t feel like you need to get to 20%. The average down payment is closer to 18% — and just 9% for first-time homebuyers. 

#5: Look into paying points

Finally, if you want the best mortgage rate, you can potentially buy it. 

Some mortgage lenders offer what they call points. Each point usually costs 1% of your total loan amount and lowers your interest rate by 0.25%. If you’ve got extra cash on hand, mortgage points can help you get a lower rate. 

The good news? There are a lot of steps you can take to lower your interest rate. To give yourself a baseline to compare against as you implement these tips, check today’s mortgage rates now from our team at Rates.Now. 

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