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To get the best interest rates and loan terms, start shopping for mortgage rates early in the home buying process.
Learning how to shop for mortgage rates may seem complicated, but ultimately, it comes down to careful planning and making sure you read the fine print. Some advertised deals on low interest rates don’t disclose that those numbers are for the ideal borrower with a high credit score, low debt-to-income ratio and enough savings for a down payment of 20% or more.
Additionally, a lower interest rate doesn’t always equal a better deal. “Some rates may be lower, but you may end up paying more in fees than if you were to get a slightly higher rate,” says Kylee Gladwell, a mortgage loan officer at Wasatch Peaks Credit Union.
Read on to find out how to find the best mortgage rates based on your financial situation and what you should know before beginning your home buying process.
How to Shop for Mortgage Rates
You should begin shopping for mortgage rates before you’ve even identified a dream home, according to Gladwell. Follow these steps to get the lowest mortgage rate possible.
1. Conduct Research on Available Mortgage Options
Start by reviewing the websites of financial institutions or banks to understand mortgage rates and options.
“Many lenders will allow you to not only shop the rate but also fees and loan programs,” Gladwell adds. “When comparing interest rates on mortgages, it’s best practice to get a copy of the loan estimate. In order to compare each deal, the loan estimate will show all fees broken down as well as if there are any points being charged to get the rate you were quoted.”
Additionally, look up information about mortgage market trends to see where interest rates stand and what you can expect. Remember that stated rates usually won’t be your final rate.
Then, check with local real estate agents who can provide recommendations and advice.
2. Review Your Credit Score and Debt-to-Income Ratio
Your credit score and debt-to-income ratio are significant factors in approving mortgage applications. A lower credit score or higher debt-to-income ratio may result in higher mortgage interest rates.
“To set yourself up for the best rates possible, be sure to keep all credit card debt at a close to zero or zero balance, keeping your debt to income at a minimum and saving money for a down payment to help lower your loan to value,” Gladwell says.
Be sure to check that all information is accurate and up to date.
To calculate your debt-to-income ratio, add up all your monthly debt obligations, including student loans, car payments, medical debt, housing payments and credit card debt. Divide this number by your total income. If you have a partner, you can calculate the debt-to-income ratio individually or for your household together.
3. Shop for Rates and Compare Offers
Now is the time to request mortgage quotes from different lenders. Request a mortgage quote from at least three to 10 mortgage lenders, then compare mortgage rates, fees, terms and conditions. Remember that if it seems too good to be true, it probably is. Be wary of interest rates that seem too good to be true and check additional fees or terms. You can also check government-backed mortgage assistance programs.
4. Understand the Different Types of Mortgage Rates
Adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) are the two main types of mortgage rates. An ARM or variable rate mortgage, may offer a lower interest rate than an FRM but may potentially increase after an agreed-upon period. For that reason, most borrowers prefer a fixed-rate mortgage so you know your mortgage payment obligation won’t change over the loan’s lifetime.
5. Get Preapproved for a Mortgage
Before shopping for final mortgage rates, you can get preapproved with one or more lenders.
“Getting pre-qualified is an excellent way to make sure you are locking in the best rate available,” Gladwell says.
For preapproval, you’ll need the same documents as final mortgage approval, including proof of income, bank statements, tax returns, credit score and government-issued ID. To get preapproved, you’ll want to pay off as much debt as possible to lower your debt-to-income ratio and work to improve your credit score.
6. Negotiate for Better Rates and Terms
Be willing to negotiate for better mortgage rates to get the most favorable terms and possibly seal a better deal. You can use a proposed mortgage and quotes from other lenders for leverage during negotiations. Remember, it can’t hurt to ask.
7. Read and Understand the Fine Print
Before accepting any mortgage offers, understand all the terms and conditions. Some agreements may have hidden fees or extra charges that can add up over time. If you’re uncomfortable reading legal documents, ask for the help of a trusted lawyer or real estate agent familiar with mortgage terms.
8. Seal the Deal and Lock In Your Rate
Once you’re sure you’ve secured the best mortgage rate for your situation, inform the lender and request a lock-in. This locks in the mortgage rate for a specified time to prevent interest rate fluctuations.
How to Get the Best Mortgage Rate
Getting the lowest mortgage rate comes down to factors you can control in a fluctuating lending market. Before applying for a mortgage, work to lower debt, increase income and improve your credit score. You can also research lenders offering lower interest rates or low-fee mortgages to lock in better rates. The best way to shop for mortgage rates comes down to planning, research and timing to get the best interest opportunities and most favorable loan amounts.
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who’s won awards for his New York City economy coverage. He’s navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Kylee Gladwell, a mortgage loan officer at Wasatch Peaks Credit Union.
Frequently Asked Questions
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The best way to shop for mortgage rates is to request a loan estimate, which gives you any fees associated with the loan in addition to the rate offered by a particular lender. Looking at loan estimates is crucial because a lower rate may come with higher fees.
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The 3-7-3 rule refers to a waiting provision in the Mortgage Disclosure Improvement Act. A lender has three business days to deliver the initial Truth in Lending Statement to the consumer, who must wait seven business days after the TIL disclosure has been sent before closing on a mortgage. Additionally, lenders must provide consumers with an accurate APR at least three business days before closing.
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As of this writing, the average mortgage interest rate for most home loan deals is 7%.
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