How to Get the Best Mortgage Rate? (March 2024)

The prices of housing and real estate, in general, have gone up quite severely after numerous world-impacting events that took place over the last several years. This also led to the surge in interest rates for home loans, and with that being the case, it is crucial to do your research and find the best mortgage rate that you can before making your move.

After all, your mortgage rate will directly influence how much you will have to pay each month for a long number of following years, not to mention the total amount you will pay during the lifetime of your loan. The interest rates are impacted by a number of factors, from your credit score to the down payment that you can afford to provide, plus the time period of the loan, the total value of the home you wish to buy, and more.

So, in order to help you find the best possible deal, we have prepared a guide on what to do in order to get the lowest mortgage rate in the current market.

Getting the best rate on your mortgage

If you are considering your options for your next mortgage, your priority should be to seek out the best available deal and to make sure that you can get your loan application approved. There are three things to focus on — having the best credit score that you can achieve, maximizing your income, and lastly — ensuring that you have some assets, which can mean a great deal.

To ensure all of this, we recommend the following seven-step process that you should consider going through.

1. Boost your credit score
2. Build a solid employment record
3. Put as much money on the side for your down payment as you can
4. Understand how the Debt-to-Income ratio works and what yours is
5. Try to get on a 15-year fixed-rate mortgage
6. Compare offers by multiple lenders
7. Lock in your rate

Now, let’s get a closer look at each of these steps and see what they mean and include.

1. Boost your credit score

Your first step will be to boost your credit score. While a low credit score will not automatically disqualify you from applying for a loan or even getting one — your chances of getting it will be reduced if your credit score is low. At the very least, even if you get the loan, a better credit score can lead to a lower mortgage rate and generally more economical borrowing terms.

Basically, your credit score is always an important factor whether you are taking a loan or renting an apartment, looking for a job, and in hundreds of other scenarios. From what we have seen, the best mortgage rates are always received by those who have high credit scores, typically 740 or more. Your goal is to make the lenders confident in your ability to pay your dues in time, and the more they trust you — the lower your interest rates will be.

Obviously, that means that you can improve it by paying other things on time, such as your bills, credit card balances, and alike. You can further boost it by ensuring that you don’t spend more than 20-30% of your credit limit. Essentially, it is all about responsible spending and timely payments. Stick to those, and your credit score will improve in no time.

One way to boost your score is to apply for a Secured Credit Card.

2. Build a solid employment record

Another thing that will make you more attractive to lenders is the guarantee that you will have at least two years of steady employment and regular income, preferably from the same employer. That way, they don’t have to worry about whether you will be able to make regular payments. To that end, you might have to show pay stubs from at least the 30-day period prior to your application for a mortgage.

It is also a good idea to prepare W-2s from the previous two years. Proof of any bonuses or commissions are a great thing to have, as well. Now, if you are self-employed, or if you work multiple part-time jobs and your payments are split, things can get a bit more complicated. However, it is not impossible to get good interest rates even under these circumstances. Anyone who is self-employed will likely have to furnish their business records and provide tax returns, P&L statements, and alike.

Even graduates who are only starting their careers, or those who have been out of work for a while, can be included, provided that they have a formal job offer in hand, as long as the offer includes the amount that they will be paid. And while gaps in your work history can be problematic, they will not necessarily disqualify you. The length of the gaps does matter, however, so lenders will not pay too much attention to any interruption of your work relationships due to things such as illness. A simple explanation will cover it, and you will be fine. Gaps that last for six months or longer, however, will make it harder to get approved.

3. Put as much money on the side for your down payment as you can

Putting the money down is obligatory for most mortgages, and generally speaking, the more you can afford to put down — the lower your rates will be. Lenders offer much better terms to those who can cover approximately 20% of the loan with a down payment. They will, of course, accept lower down payments as well, but if you can afford a percentage under 20%, that will usually require you to pay private mortgage insurance too, and that can be anywhere from 0.05% to 1%, or even more of the original loan amount, per year.

In other words, if you can save up the money to cover 20% or more with your down payment, you will skip a lot of additional payments and a lot of trouble for yourself, so this is definitely something to think about.

4. Understand how the Debt-to-Income ratio works and what yours is

In lending, there is something called debt-to-income ratio, or DTI. Essentially, this compares your debt to the amount of money that you make. To be even more specific, the ratio compares your total monthly debt payment against your gross monthly income in order to determine whether you can afford the payment or not.

Generally speaking, DTI should be as low as possible, as lenders prefer working with those who have higher incomes. If your monthly debt is only a smaller portion of your salary, that increases your odds of being able to pay regularly and in time. On the other hand, the higher your DTI, the more of your income needs to go to the debt payment, which makes the lenders question whether you will put paying your dues ahead of other needs or not.

Usually, lenders will avoid giving out loans where monthly payments would require more than 28% of the borrower’s monthly income, so your overall DTI needs to be under 36% in order to be seriously considered. This is also where different types of loans should be considered, as conventional loans can be received for a maximum DTI of 45%, while the maximum FHA loans require the DTI to be under 43%. As always, there can be exceptions, but this is not something that you should count on.

5. Try to get on a 15-year fixed-rate mortgage

The most common fixed mortgages tend to be 30-year ones. However, if you think that your new home will be a long-term one, and you are confident in the steadiness of your cash flow, we recommend considering a 15-year fixed-rate mortgage. That way, you’ll pay off your home sooner and get out of debt in half the usual time. Another thing to consider is going for a 15-year term if you are refinancing a mortgage.

6. Compare offers by multiple lenders

As mentioned earlier, you should consider different mortgages in order to find the best deal, no question about it. However, once you decide on a mortgage, you should also check out multiple lenders, their terms, requirements, and alike, as you will find that these aspects can differ from one company to another. Studies have shown that borrowers can save $1,500 on average by getting only a single additional rate quote and $3,000 on average if they get five.

In other words, it can pay quite a bit to look beyond your bank or credit union and shop around for a bit.

7. Lock in your rate

Finally, we recommend locking in your rate as soon as possible. The reason for this is that the closing process can be lengthy, often taking several weeks. It is during these weeks that the rates can fluctuate, and you may end up having to pay more than expected because of this. It doesn’t hurt to ask your lender to lock in your rate, as you will then know exactly how much you need to pay. And while this service might come with a fee — you will likely pay less than what you would have to set aside if the rates go up at the wrong moment.

What’s your next step?

Now that you know all that, you can look up different loan opportunities, compare rates, and come one step closer to getting an affordable mortgage. With that said, here is what you should expect next.

After you apply for a mortgage, you will receive a loan estimate within three days, usually. This estimate will spell out all the details of your mortgage, including things such as the closing costs. However, keep in mind that these are currently still nothing more than estimates and that final numbers may be different depending on any changes in the market at the time when you sign the deal.

Next, your lender will review your application to determine whether they should approve the mortgage. During this time, you might receive additional documentation requests or some extra questions. Prepare for that, and be as responsive and as detailed as possible to improve your chances. Do not try to hide anything, and maintain your financial and employment situation. Also, do not apply for new credit, do not make large purchases, and certainly do not try to switch jobs during this period.

Then, if your mortgage gets approved, you will be one step closer to closing and buying your new home. However, if your loan gets denied, you should try to figure out what led to that decision and then reapply at some other lender once you deal with whatever influenced the original lender to reject you. Still, we recommend waiting a bit before trying again, as doing so might harm your credit score.