Want to save thousands on your mortgage? Here’s how:
- Boost Your Credit Score: Higher scores mean better rates. Aim for 760+ to save big on interest.
- Increase Your Down Payment: Putting down 20% can significantly lower your rate and monthly payments.
- Compare Lenders: Get multiple quotes to find the best deal. Even one extra quote could save you $1,500.
- Choose the Right Loan Type: Fixed or adjustable? Pick what fits your financial goals.
- Lower Your Debt-to-Income Ratio: Pay off debts or increase income to qualify for better rates.
- Lock Your Rate at the Right Time: Secure your rate when market trends are rising.
- Consider Mortgage Points: Pay upfront to lower your rate if you plan to stay in the home long-term.
- Negotiate Terms: Ask lenders to reduce fees or match better offers.
Even small rate reductions can save tens of thousands over the life of your loan. Start with these steps to secure the best mortgage deal for your financial future.
Rate Shopping For a Mortgage: Three Mistakes to Avoid
1. Improve Your Credit Score
Your credit score plays a key role in determining your mortgage rate. Lenders use this number to gauge how likely you are to repay your loan. Higher scores often lead to better rates.
How Credit Scores Affect Your Rate
Let’s break it down: For a $300,000, 30-year fixed mortgage, having a top-tier credit score (760–850) could reduce your monthly payment from $2,211 to $1,888. Over time, this saves you $116,354 in total interest compared to someone with a fair score (620–639) [1].
As of January 3, 2025, borrowers with a 700 credit score faced average mortgage rates of 7.42% [2]. If you want the best rates, aim for a score of 760 or higher [2].
Steps to Boost Your Credit Score
Here are some actionable ways to improve your credit score:
- Lower Your Credit Utilization: Keep balances below 30% of your credit limit [3]. This accounts for 30% of your FICO score [5]. You can achieve this by paying down balances early or requesting a credit limit increase.
- Fix Late Payments: A single late payment can drop your score by 90-110 points [3]. Reach out to creditors and ask for late payment forgiveness if possible.
"The lower a person’s score, the more likely they are to achieve a 100-point increase. That’s simply because there is much more upside, and small changes can result in greater score increases." – Rod Griffin, Senior Director of Public Education and Advocacy, Experian [4]
- Check Your Credit Reports: Visit AnnualCreditReport.com for free access to your credit reports [6]. Equifax also offers six free reports annually – call 1-866-349-5191 or visit their site [6]. Dispute any errors directly with the credit bureau and the reporting company.
- Add Alternative Payment History: Tools like Experian Boost can include utility and phone payments in your credit report, with users seeing an average 12-point increase in their FICO Score 8 [3]. RentReporters users have reported gains of 35-50 points in as little as 10 days [3].
- Keep Old Credit Accounts Open: Length of credit history makes up 15% of your FICO score [5]. Avoid closing old accounts or opening new ones before applying for a mortgage, as new accounts can temporarily lower your score.
Improving your credit score is a smart first step toward securing a lower mortgage rate. Once you’ve tackled this, consider increasing your down payment to lock in even better loan terms.
2. Make a Bigger Down Payment
In today’s housing market, there’s a straightforward link between the size of your down payment and the interest rate you can get: the more you put down, the lower your rate will likely be.
How Down Payment Size Impacts Rates
Take a look at this example for a $419,200 home purchase:
| Down Payment | Interest Rate | Monthly Payment | Total Principal and Interest Cost |
|---|---|---|---|
| 3% ($12,576) | 6.75% | $2,517 | $905,962 |
| 5% ($20,960) | 6.00% | $2,278 | $820,185 |
| 10% ($41,920) | 5.50% | $2,044 | $735,855 |
| 20% ($83,840) | 4.50% | $1,930 | $583,702 |
By increasing your down payment from 3% to 20%, you could save a staggering $322,260 in interest over the life of the loan [7].
"Buying a home is emotional, but making decisions based on affordability – not excitement – is key", says Thao Truong, CFP, CDFA, and Wealth Advisor at Morton Wealth [8].
Now, let’s explore how you can build this fund more effectively.
Building Your Down Payment Fund
Saving for a down payment is one of the most important steps to secure a better mortgage rate. Here are some practical ways to grow your fund:
- Set up automatic savings: Transfer a fixed amount to a dedicated account regularly.
- Redirect bonuses and refunds: Funnel tax refunds, work bonuses, or unexpected windfalls into your savings.
- Consider a side hustle: Use extra income to boost your down payment fund.
- Choose high-yield accounts: Opt for savings accounts that offer better returns.
- Cut back on big expenses: Reduce spending on things like travel or dining out.
If you’re eligible, down payment assistance programs can also help. For example, California’s CalHFA offers up to 3.5% assistance through its MyHome Assistance Program. This is a deferred loan, meaning you only need to repay it when you sell or refinance your home [10].
"Writing down your plan – including how much you need for a down payment, estimated closing costs, and a timeline – can help you understand how hard the path is and what might delay a successful outcome", explains Heather Winston, Chief Product Officer at Principal Financial Group [8].
In 2024, the median buyer put down 18%, while first-time buyers averaged 9%. It’s important to strike a balance between saving for a larger down payment and keeping enough for emergencies [9].
3. Get Multiple Rate Quotes
Once your credit is in better shape and you’ve saved up a larger down payment, the next step is comparing offers from multiple lenders. This is one of the best ways to secure a lower mortgage rate. Data shows that borrowers who got quotes from five lenders saved an average of $3,000 over the life of a $250,000 home loan [15]. Even just one extra quote could save you around $1,500 [15]. By shopping around, you can take advantage of your improved financial position and find the most competitive rate.
How to Compare Lender Offers
When evaluating mortgage offers, focus on the Annual Percentage Rate (APR) rather than just the interest rate. The APR provides a clearer picture because it includes both the interest rate and fees [13]. Different lenders – whether they’re banks, credit unions, online platforms, or brokers – offer varying APRs, so comparing multiple offers is crucial.
Here’s how to do it:
- Request Loan Estimates from at least three lenders [13]. Pay close attention to the APR, closing costs, total cash required, and any available rate discounts [27, 30].
"Applying to multiple lenders helps you secure the lowest rate, and it can give you negotiating power if you have a preferred lender. Additionally, you can ask your lender whether you qualify for any rate discounts", says Taylor Getler, Home and Mortgages Writer for NerdWallet [12].
If you want to simplify the process, consider using platforms designed for comparing rates, like HomeLoanAgents.
Using HomeLoanAgents for Rate Comparisons
HomeLoanAgents makes it easier to compare offers across various loan types, including fixed-rate, adjustable-rate, FHA, and VA loans. Operating in states like California, Texas, and Florida, the platform offers tools like real-time updates, AI-based underwriting, digital verifications, and both online and agent-assisted services.
Keep in mind, interest rates can differ by more than half a percentage point between lenders for similar loan profiles [15]. While that may not sound like much, it can lead to substantial savings over time. Always request official Loan Estimates within three business days to make accurate comparisons [14].
4. Pick the Right Mortgage Type
Choosing the right type of mortgage can have a big impact on both your interest rate and long-term costs. Let’s break down the main loan options to help you align your choice with your financial situation.
Fixed vs. Adjustable Rate Loans
A fixed-rate mortgage locks in the same interest rate for the entire term of the loan, giving you predictable payments. On the other hand, an adjustable-rate mortgage (ARM) starts with a lower rate for a set period – usually five years – before adjusting periodically, often every six months [17].
| Feature | Fixed‐Rate Mortgage | Adjustable‐Rate Mortgage |
|---|---|---|
| Initial Rate | Generally higher | Lower for the first few years |
| Rate Changes | Stays the same | Adjusts after the fixed period |
| Stable Payments | Yes | Can vary over time |
| Best For | Long-term homeowners | Short-term owners or when rates may drop |
"With a fixed‐rate mortgage, the interest rate is set when you take out the loan and will not change. With an adjustable‐rate mortgage, the interest rate may go up or down."
– Consumer Financial Protection Bureau [16]
Government and Special Loan Programs
If conventional fixed or adjustable loans don’t fit your needs, government-backed programs might help you secure a lower rate. These loans often make homeownership more affordable. Here are the current rates for major programs as of March 5, 2025:
VA loans, designed for service members, veterans, and certain surviving spouses, typically offer some of the lowest rates. Eligibility includes 90 consecutive days of active wartime service, 181 days of active peacetime service, or six or more years in the National Guard or Reserves [20].
FHA loans are geared toward making homeownership more accessible. They require a minimum credit score of 580 with a 3.5% down payment, or 500 with a 10% down payment [18]. However, these loans come with mortgage insurance premiums (MIP), which include an upfront fee of 1.75% of the loan amount and ongoing monthly premiums [18].
For example, Navy Federal Credit Union offers competitive VA loan rates, with 30-year terms as low as 5.625% and 15-year terms at 5.125% as of March 6, 2025 [20].
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5. Lower Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio plays a key role in determining your mortgage rate. Lenders rely on it to assess your ability to handle monthly payments. In 2022, a high DTI was the top reason for mortgage application denials [21].
How to Calculate Your DTI Ratio
Lenders focus on two types of DTI ratios when evaluating your mortgage rate:
| DTI Type | Calculation | Ideal Target | Includes |
|---|---|---|---|
| Front-end DTI | Housing costs ÷ Monthly income | Below 28% | Mortgage, insurance, and property taxes |
| Back-end DTI | Total debts ÷ Monthly income | Below 36% | Housing costs plus other monthly debts |
For example, if your monthly income is $6,000 and your total debts amount to $2,400, your back-end DTI is 40%, which exceeds the recommended 36% [22].
"Your debt-to-income ratio, or DTI, is as important as your credit score and job stability to qualify for a home loan." – NerdWallet [21]
Once you’ve calculated your DTI, you can take steps to bring it down.
Tips to Reduce Your DTI
Here are some practical ways to lower your DTI and improve your chances of securing better mortgage rates:
-
Pay Off Existing Debt
Focus on high-interest debts first. According to Evan Henderson, a Certified Financial Planner with Northright Financial, "A strong debt-to-income ratio would be less than 28% of your monthly income on housing and no more than an additional 8% on other debts" [23]. -
Boost Your Income
Explore options like freelancing, taking on a side job, or participating in the gig economy. Extra income can help improve your DTI ratio [24]. -
Renegotiate with Creditors
Contact creditors to negotiate lower interest rates or better payment terms. This can help reduce your monthly financial commitments [25].
"It means you have more money to pay off debts, which makes it less likely for you to miss payments." – Anna Sergunina, Certified Financial Planner and CEO of MainStreet Financial Planning [23]
DTI Requirements by Loan Type
Different loan types have varying DTI limits:
| Loan Type | Maximum Allowed DTI | Notes |
|---|---|---|
| Conventional | 36–43% | Some lenders may allow up to 50% |
| FHA | Up to 50% | Requires strong compensating factors |
| VA | Up to 41% | Offers more flexible guidelines |
6. Time Your Rate Lock
A rate lock helps shield you from rising interest rates while you’re navigating the mortgage process. Here’s what you need to know about how they work and when to use one.
How Rate Locks Work
A rate lock is a promise from your lender that your interest rate won’t increase between the time your mortgage is approved and when you close, as long as your financial situation and loan details stay the same. Lenders offer different lock periods, each with its own use case and potential costs:
| Lock Period | Typical Use Case | Cost Consideration |
|---|---|---|
| 30 days | Quick closings | Usually no cost |
| 45 days | Standard purchases | May involve a small fee |
| 60 days | Complex transactions | Higher fees may apply |
| 90+ days | New construction | Often costs about 0.25% of the loan amount |
When to Lock Your Rate
-
You’ve Found a Great Rate
Once you’ve compared multiple lenders, received approval, and confirmed the monthly payment fits your budget, it’s a good time to lock in. -
Market Rates Are Climbing
If interest rates are trending upward, locking your rate ensures you avoid paying more. In a declining rate environment, ask your lender about float-down options that let you take advantage of lower rates. -
Your Closing Date Is Set
Choose a lock period that comfortably covers your expected closing timeline. For instance, if your closing is expected to take 45 days, a 60-day lock provides a cushion for potential delays.
"The time to lock in the mortgage rate is after you’ve shopped lenders and are approved for a home loan. That loan should have a rate you feel comfortable with and a resulting monthly payment that fits your budget." – NerdWallet [26]
Recent data shows the average time to close a purchase mortgage was 46 days in January 2025 [26], with about 10% of closings experiencing delays in early 2024 [27]. Extension fees are typically 0.25% of the loan amount [27], meaning a $300,000 mortgage could incur a $750 fee if an extension is needed. This makes selecting an appropriate lock period critical.
Before locking your rate, make sure to:
- Get all terms in writing
- Understand float-down options, if offered
- Double-check the lock expiration date
- Review conditions that could void the lock
- Assess potential costs for extensions
7. Evaluate Mortgage Points
After locking in your mortgage rate, you might want to consider lowering it further by purchasing mortgage points – especially if you plan to stay in your home for the long haul. Mortgage points let you prepay interest to reduce your rate. Each point costs 1% of your loan amount and typically lowers your interest rate by 0.25 percentage points. To make an informed decision, it’s essential to calculate the potential savings and weigh the upfront cost.
What Are Discount Points?
Mortgage points, often called discount points, are fees paid upfront to reduce your interest rate. Each point costs 1% of your loan’s total amount and usually lowers your rate by 0.25 percentage points, though specifics can vary depending on the lender.
Here’s how points might work for a $300,000 loan:
| Points | Cost | Rate Reduction | Monthly Payment Impact |
|---|---|---|---|
| 1 point | $3,000 | -0.25% | $30 savings |
| 2 points | $6,000 | -0.50% | $60 savings |
| 4 points | $12,000 | -1.00% | $120 savings |
"Mortgage points are essentially a form of prepaid interest you can choose to pay up front in exchange for a lower interest rate and monthly payments (a practice known as ‘buying down’ your interest rate)." – U.S. Bank [28]
The next step? Calculate whether the upfront cost of buying points is worth the monthly savings over time.
Breaking Down Points vs. Savings
Let’s take a $200,000 mortgage with a 5.5% interest rate as an example:
- Initial monthly payment (no points): $1,136
- Cost of two points: $4,000
- New rate after points: 5.0%
- New monthly payment: $1,074
- Monthly savings: $62
- Break-even period: 64.5 months (around 5.3 years) [30]
When deciding whether to buy points, keep these factors in mind:
- How long you’ll own the home: Points make sense if you expect to keep the loan beyond the break-even period.
- Your available cash: Make sure you have enough money to cover both the points and other closing costs.
- Tax considerations: Discount points are generally tax-deductible for the first $750,000 of a mortgage loan [30].
- The interest rate climate: If rates are dropping, refinancing later might save you more than buying points now.
Here’s a comparison showing the potential savings over a 30-year loan:
| Scenario | Interest Rate | Monthly Payment | Total Interest Cost | Net Savings |
|---|---|---|---|---|
| No Points | 5.25% | $1,104.41 | $197,585.34 | – |
| 1 Point | 5.00% | $1,073.64 | $186,513.11 | $9,072.22 |
| 2 Points | 4.75% | $1,043.29 | $175,588.13 | $17,997.21 |
The "Net Savings" column factors in the initial cost of the points, showing how much you could save if you keep the loan for its full term [29]. Understanding your break-even point is crucial to determining whether purchasing points fits your financial plans. Combining this strategy with others can help you maximize your overall savings.
8. Ask for Better Terms
Once you’ve figured out the value of mortgage points, it’s time to negotiate with your lender. Remember, mortgage terms aren’t set in stone. If you come prepared with strong documentation, you’ll have a better chance of securing lower rates and fees.
What You Can Negotiate
Besides interest rates, here are some fees you should review and potentially negotiate:
| Fee Type | Typical Cost | Negotiation Potential |
|---|---|---|
| Loan Origination | 0.5% – 1.5% of loan | High |
| Application Fee | $300 – $500 | Medium |
| Title Services | Varies by state | Medium |
| Discount Points | 1% per point | High |
| Lender Credits | Varies | Medium |
Loan origination fees and discount points usually offer the most wiggle room. Keep in mind, government-mandated fees are not negotiable.
"Negotiate with your lender on the terms of your mortgage no matter what type it may be – VA loan, 15 year mortgage or 30 year mortgage. Your request may be turned down, but the only way you’ll know for sure is if you ask. You can improve your odds of negotiating successfully by starting from a position of strength." – Mortgages.com [34]
Tips for Successful Negotiation
Freddie Mac’s research shows that comparing offers can save you up to $600 a year with two lenders – or $1,200 with four [11]. Here’s how to approach the negotiation process:
-
Leverage Prequalified Offers
Get prequalified with 3-4 lenders and request official Loan Estimates. This provides accurate APR comparisons [32]. -
Use Existing Bank Relationships
If you’re already a customer, ask about relationship discounts or fee waivers [32]. -
Present Competing Offers
Show better offers to your preferred lender and ask them to match specific terms [33]. -
Compare Total Costs
Weigh the trade-offs between rates and credits. For example, a 6.25% interest rate with no closing costs versus 6% with $5,000 in closing costs – calculate savings based on how long you plan to stay in the home [31].
Timing is key. Gather offers within a few days to ensure you’re comparing similar market conditions. And don’t hesitate to walk away if the terms don’t improve [35].
Combining these negotiation tactics with earlier strategies can help you reduce your overall mortgage expenses significantly.
Conclusion
Lowering your mortgage rate by just 0.5% on a $300,000 home could save you more than $28,000 in interest over a 30-year period [36]. On top of that, boosting your credit score can help you qualify for even lower rates, leading to even greater savings over time [37].
"The best mortgage rates and products are typically reserved for those with a credit score of 740 or better" [37]
Negotiation also plays a big role. According to a 2023 LendingTree survey, 80% of borrowers who negotiated ended up with better terms [37]. As highlighted by Navy Federal Credit Union:
"Small improvements in your mortgage rate can help you save more over the life of your loan" [36]
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