How to Shop for Mortgage Rates Quickly

Mortgage rate shopping can save you thousands of dollars

Looking to learn how to shop for mortgage rates because you’ve stumbled upon your dream home?

It’s easy to want to jump the gun and secure a mortgage rate ASAP, especially when the housing market is hot or if you’re keen to refinance. However, rushing could land you a rate that might look small on paper but adds up to a mountain of interest over the life of a 15- or 30-year loan.

Even when it feels like time is of the essence, there’s always time to explore your options. Here’s how you can do that wisely.

In this article (Skip to...)

• How to rate shop
• How to deal with lenders
• How to get the best rate
• When to rate lock
• FAQ

How to shop for mortgage rates in 5 steps

When it comes to purchasing a new home, the mortgage rate you secure can significantly impact your financial future. In fact, research from Freddie Mac shows that borrowers can save $600 over the life of their loan by getting just two extra quotes and $1,200 or more by getting five quotes.

It’s not enough to accept the first offer you receive; it’s essential to shop around to find the best rate. Here’s how:

1. Check your free credit scores

A strong credit score can be your path to lower mortgage rates. Don’t know your credit score? No worries—you can fetch your free credit reports from AnnualCreditReport.com. This website is your go-to source for credit reports from the big three credit reporting bureaus: Equifax, Experian, and TransUnion.

Once you have your reports, comb through them to check for any errors that might be dragging your score down. If you find inaccuracies, resolve them promptly.

A higher score can save you a substantial amount over the period of time you’ll be paying off your mortgage.

2. Research your mortgage loan options

There are a wide range of mortgage options available in the housing market, so it is important to familiarize yourself with them. Broadly speaking, you’ll likely encounter two main types of mortgages: fixed-rate and adjustable-rate.

Fixed-rate mortgages come with a stable interest rate that won’t change over the life of the loan, offering you predictable monthly payments. On the other hand, adjustable-rate mortgages (ARMs) offer an initial rate that may be lower but will adjust after a certain period, based on market conditions.

You’ve also got standard mortgage loans and some special options backed by Uncle Sam.

• Conventional loans are backed by Fannie Mae or Freddie Mac and are often favored for their competitive mortgage rates. Unlike government-insured loans, they typically require higher credit scores and larger down payments, but they come with the advantage of more flexible terms and conditions
• FHA loans are popular among first-time homebuyers because they’re backed by the Federal Housing Administration and offer more flexibility on credit scores and down payments. Keep in mind that you’re on the hook for mortgage insurance premiums for the life of the loan
• VA loans are designed for those who’ve served in the military, or their spouses. These loans are backed by the Department of Veterans Affairs and usually don’t require a down payment, unless your credit score is on the lower side
• USDA loans help buyers in rural areas and often come without a down payment requirement. However, you’ll need to meet specific income guidelines and make sure the home you’re eyeing is in an eligible location

Assess your long-term plans and risk tolerance to decide which type suits your home purchase needs better.

3. Get pre-approved for a home loan

Think of pre-approval as a financial background check that serves a dual purpose.

First, it gives you a comprehensive view of the mortgage rates you could qualify for, based on your creditworthiness and financial stability. Second, a pre-approval letter boosts your credibility in the eyes of sellers, making you a more attractive buyer.

You’ll need to fill out a loan application and provide financial documentation, so be prepared for a bit of paperwork.

4. Compare rates from multiple lenders

Here’s where the rubber meets the road. You’ve done your homework; now it’s time to shop.

Don’t limit yourself to just one lender. Broaden your horizons by approaching a variety of lending institutions, including traditional banks, credit unions, and online lenders.

Take note not just of the interest rates but also of other costs like origination fees and closing costs. Remember, the lowest interest rate doesn’t always equate to the most cost-effective loan.

5. Make lenders compete for your business

Did you know that mortgage rates aren’t chiseled in stone? So, don’t shy away from negotiating. Use the rate quotes you’ve gathered from various lenders as leverage. Make it clear that you’re shopping around and willing to go with the lender who offers you the best deal.

This competitive atmosphere can work to your advantage, possibly nudging lenders to offer you a better rate than initially quoted.

Learning how to shop for mortgage rates might feel overwhelming at first, especially if you’re a first-time homebuyer faced with a sea of options and a whole new vocabulary. But don’t sweat it; with the right tips at your disposal, you’ll be negotiating like a pro with loan officers before you know it.

Tips for finding the best mortgage rates

Mortgage rate shopping isn’t hard, and it can easily yield thousands of dollars in savings. But you have to go about shopping for a mortgage the right way.

There’s more to it than just comparing rates online. You need to be a strategic shopper and find the lowest-rate loan for your financial situation. Here’s what to do:

1. Don’t use advertised rates to choose a lender

Plenty of banks and mortgage lenders show their current mortgage rates online. You could easily check these advertised rates in just a few minutes, choose the lowest one, and call it a day.

But it’s almost guaranteed that this strategy won’t find you the best deal.

Why? Because advertised rates don’t reflect your situation. In fact, online rates almost always represent a perfect borrower — one with excellent credit, low debts, and a 20% or larger down payment.

Unless you meet these criteria exactly, your own interest rates will be different from the ones you see online.

To find your “real” best interest rate, you need to apply for rate quotes with at least 3–5 lenders. This involves filling out a pre-approval application and providing:

• Personal contact information
• Personal IDs like a driver’s license or Social Security number
• Details about the property you’re purchasing or refinancing
• 2-3 months’ worth of bank statements
• Statements for retirement accounts, investments, and other assets
• W-2 or 1099 forms (for self-employed borrowers)
• Recent pay stubs

Your lender will also run a credit report and pull your credit score. Your credit history has a big impact on the rate you’re offered, so polish up your report and score before you apply if possible.

You can typically apply for a rate quote online, which makes this part of the mortgage process relatively quick and easy.

2. Don’t accept the first mortgage rate offer you get

Even if you feel that time is of the essence, it’s important to see the rates other mortgage lenders come up with. Interest rates and lender fees significantly impact how much you’ll pay, so it’s really important to make sure you’re getting the best possible deal.

Consider how much interest you’ll end up paying over the course of a 30-year mortgage loan for $300,000:

If you settle for a higher rate in a rush, you’ll kick yourself later when you see better offers. For instance, just a 0.25% higher rate can tack on an extra $40 to your monthly mortgage payment.

While that might not sound like a lot, it adds up to more than $13,000 over the entire life of the loan. Knowing how to shop for mortgage rates can help you avoid this costly mistake.

3. Don’t take lender recommendations at face value

Friends and family members may encourage you to work with their mortgage company if they have had a good experience. But your circumstances may be different from theirs.

It’s fine to inquire with someone your family member or friend suggests, but explore other home loan options as well.

Your credit score may be better or worse, and you may be looking for different loan products. Depending on a lender’s priorities — they all favor certain types of borrowers — it might not be as competitive for you as for your friend.

Lenders often mention the types of loans and special mortgage programs they offer on their websites, so dig around a bit before applying.

4. Don’t default to your bank because it’s easy

When figuring out how to shop for mortgage rates, you might be tempted to keep all your financial dealings with your current bank for the sake of convenience. However, if they’re not offering you the best rate or the right loan program for your situation, you’re actually better off securing a mortgage from a different lender.

Big banks may also take longer to process applications, and they often keep traditional work hours, which may not align with your schedule.

An online lender might offer more flexible customer service options. Not to mention, digital lenders often have faster turnaround times on mortgage applications.

By all means, see what your bank can do for you. Just don’t think you’re obligated to stick with them for your mortgage. Many banks will sell your loan to a mortgage servicer anyway, so you wouldn’t end up working with them over the life of your home loan.

5. Don’t be afraid to negotiate

Believe it or not, lenders have control over the rates and fees they offer, and they’ll often negotiate to get your business.

• Let’s say Lender A gives you a lower rate, but Lender B has far lower upfront fees. There’s nothing to lose by showing Lender A the competing loan offer and asking if they can match or beat it.

Even if a lender can’t go much lower on the rate, they may be able to provide other discounts or incentives that make the loan worth it.

A lender could potentially lower your origination fee, for example, which could reduce your closing costs significantly.

How to get the best interest rate

While it may feel like you’re at the mercy of lenders and fluctuating market conditions, securing the best mortgage rate isn’t just about shopping around or haggling over percentage points.

There are proactive steps you can take to improve the rates offered to you. By taking these actions, you could save a significant amount of money, which in turn expands your home-buying budget. And that’s really the essence of knowing how to shop for mortgage rates effectively.

Increase your credit score and your down payment

Your credit score and the size of your down payment are two major factors that can significantly impact the mortgage rates you’re offered. By working on these areas, you can make yourself more attractive to lenders and secure a lower interest rate.

Firstly, consider polishing your credit score. Your credit score reflects your reliability as a borrower, and a higher score can unlock lower interest rates. Ensure that all bills are paid punctually, reduce any existing debt, including high-interest credit card debt, and rectify any inaccuracies on your credit report. Regularly monitoring your credit report can also help you identify and address any issues that might be dragging down your score.

Secondly, strive to boost your down payment. The larger your down payment, the less risky you appear to lenders. A significant initial down payment can often lead to a more favorable mortgage rate. Therefore, if your circumstances allow, consider saving more for your down payment. This not only reduces the amount you need to borrow but can also eliminate the need for private mortgage insurance (PMI), further saving you money.

Lower your debt-to-income ratio

Getting the lowest mortgage rate requires you to have a firm grasp of your debt-to-income (DTI) ratio. This ratio looks at your monthly debt payments and compares them to your gross monthly income.

Lenders love seeing a low DTI because it suggests you won’t be overstretching your budget with a new loan. On the flip side, a high DTI indicates that a large chunk of your income is already tied up, making it more challenging to manage extra debt.

A common guideline that lenders follow is to keep your mortgage payment to no more than 28% of your gross monthly income.

Say you’re making $6,000 each month. Following the general guideline of not going beyond 28% of your gross monthly income for a mortgage payment, you’d be looking at a max of $1,680—that’s $6,000 multiplied by 0.28.

Opt for a shorter loan term

By choosing a shorter loan term, such as a 15-year mortgage, you can benefit from lower interest rates compared to a traditional 30-year term. While this strategy does increase your monthly payments, the substantial savings in interest over the life of the loan could make it worthwhile.

Many of the best mortgage lenders offer a range of terms, so it’s worth running the numbers through a mortgage calculator to see the potential savings. Remember, real estate is a long-term investment, and securing the best possible terms now can pay dividends in the future.

Choose an adjustable-rate mortgage

An adjustable-rate mortgage (ARM) often starts with a lower interest rate than a fixed-rate mortgage, which can result in initial savings. However, unlike a fixed-rate mortgage, the interest rate on an ARM can change over time, usually after an initial fixed-rate period. This could be a beneficial strategy if you plan on moving before the rate adjusts upward, but it also carries the risk of higher payments if property taxes or interest rates increase. Make sure to ask your mortgage lender for a loan estimate that outlines the terms of the ARM, so you can plan accordingly.

Take advantage of first-time home buyer programs

As a first-time home buyer, there are numerous programs designed to make the home-buying process more affordable.

Each state offers a distinct set of home buyer assistance programs, which frequently include down payment assistance, competitive interest rates, and tax breaks. Some initiatives are region-specific, while others provide assistance to home buyers who work in specific fields, such as educators, emergency personnel, and military veterans.

The Federal Housing Administration (FHA) guarantees a loan program that has widespread appeal because it allows borrowers to benefit from low down payments and flexible credit standards in addition to low interest rates. The FHA loan program allows for down payments of as little as 3.5% and credit scores as low as 500 with a 10% down payment.

Buy down interest rates

In the world of real estate, buying points or “buying down the rate” refers to paying an upfront fee to lower your mortgage interest rate.

The cost to buy down your interest rate can vary, but it’s typically measured in “mortgage points.” As mentioned, one mortgage point equals 1% of your loan amount and can reduce your interest rate by 0.25%. Therefore, if you’re borrowing $300,000 and wish to buy down your rate by paying two points upfront, it would cost you $6,000.

In essence, buying down your interest rate allows you to prepay some of the interest on your loan to secure a lower rate over the mortgage’s life. This strategy can be beneficial if you have some extra cash at the start and anticipate staying in your home for a significant amount of time.

Scoring significant savings over the life of your loan is more than achievable, particularly when you’re dealing with larger mortgages like jumbo loans.

Using a mortgage calculator is a smart move to gauge potential savings and see if the initial costs make sense for you. This is a tactic that top-tier mortgage lenders will often talk through with you when giving a loan estimate, and it’s an important part of knowing how to shop for mortgage rates.

When should I lock in a mortgage rate?

You might be able to lock in your rate after getting a mortgage preapproval. However, most lenders will require you to find a property and submit a fully signed purchase agreement before you can lock.

If you are refinancing, you can lock in as soon as you’re approved because the property is already identified.

Locking in means your rate can’t rise or fall, regardless of what the markets are doing, as long as your loan closes within the set rate lock period.

Keep in mind that the rate and loan terms on your pre-approval letter are only binding if the lender can verify all your finances in underwriting. If the underwriter finds anything amiss, the offer may be subject to change.

In this case, your loan officer or mortgage broker would walk you through the next steps required to get re-approved and lock in a rate.

FAQ: How to shop for mortgage rates

Today’s mortgage and refinance rates

If you’re figuring out how to shop for mortgage rates, you’re on the right track, especially now that rates have climbed up from their lows during the COVID pandemic.

The interest rate you qualify for could make or break your budget, and it might even be the deciding factor in whether you can buy a home in the first place.

So do yourself a solid and invest some time in rate-shopping before making any big moves.