3 Savvy Hacks for Securing the Best Mortgage Interest Rate

Buying and owning a house is expensive -- there's no way around it. The interest rate on your mortgage is a huge influence on how much you'll end up paying. No one is doing 3% mortgages anymore -- as of this writing, the average rate on a 30-year fixed-rate mortgage is 6.9%, according to Freddie Mac. Here are a few ways to get the lowest possible rate, even in a less-than-ideal mortgage market.

1. Focus on improving your credit

A house is likely to be the largest purchase most of us will ever make, and if you're borrowing money in the form of a mortgage to do so, it pays to be the best borrower you can be. A FICO® Score of 620 is regarded to be the minimum for approval on a conventional loan, but the higher your score, the more likely you are to get a good rate on any home loan. Improve yours by doing the following:

• Pay down some debt: If you can pay down some current debt (especially of the credit card variety), it'll free up more cash in your budget and you'll see your credit score rise to boot -- mine increased by 100 points when I paid off my debt.
• Check your credit report for errors: If there are mistakes on your credit report (such as an account reported as delinquent when in reality it is paid and up to date), disputing them with the credit bureau and having them removed can improve your credit score.
• Hold off on applying for new credit: If you're preparing to apply for a mortgage, now is not the time to get a sweet new travel credit card. Hard credit inquiries (generated when you apply for new credit) will ding your credit score.
• Keep making on-time payments: Payment history is the biggest part of your FICO® Score, representing 35% of it. Lenders prefer to loan money to consumers who have a history of reliable payments, so now is the time to get better about it -- or keep on keeping on.

2. Go in with a solid down payment

Buying a house involves a lot of money along the way, and the biggest single chunk of cash you'll shell out is likely to be your down payment. If you intend to buy with a conventional loan, the gold standard for a down payment is 20%.

With 20% down, you'll have a solid amount of equity in a home (making it less likely that you'll end up underwater -- owing more than the house is worth). Plus, you can avoid an extra expense tacked onto your monthly payment -- private mortgage insurance, or PMI.

But in some housing markets, this could take you years to save -- and even on a national level, the median home price was $417,700 as of Q4 2023. Putting down 20% on a home at that price comes to nearly $84,000 -- yikes.

You may be able to get away with putting down as little as 3% on a conventional loan, but the more you put down, the more "skin in the game" you'll have -- and this looks better to a lender. If you can put down that 20%, it looks a lot less likely that you'll stop making payments and forfeit that cash when your house is foreclosed upon.

If that's not possible, I understand…but the higher the down payment, the better. Instead of 3%, can you swing 5%, or what about 10%?

3. Consider all your lender options

How will you know what the best rate for you (based on credit score, down payment, etc.) is if you don't shop around? You won't. So the solution is to dig in and shop around. It isn't exactly a riveting experience to spend an afternoon applying with different mortgage lenders (ask me how I know), but it's very illuminating to see all the possibilities available to you.

Maybe one lender offers a startlingly low rate -- but then you dig into the fine print and discover it's only possible because you're being charged for "mortgage points." Meanwhile, a different lender's rate is a little higher than that, but you're not shelling out extra money upfront to get it.

Different lenders also have different options for mortgage types -- for example, you might find a lower rate with an adjustable-rate mortgage (ARM). One of these might be a good option for you, if you're comfortable starting off with a lower rate that is fixed for a period (often five, seven, or 10 years), but can then adjust annually after that. (If you get one of these, consider refinancing into a fixed-rate loan once rates come down across the board.)

And you might even find differences in rates between big national lenders (think big banks), online-only lenders, and tiny local credit unions. It's absolutely worth taking the time to explore all your options and apply for pre-approval with a few lenders to see what you're offered.

It's not the best time to be applying for a mortgage, thanks to higher rates than we've seen in a while. But if you can go into the process with a boosted credit score and a solid amount of cash to put down, you're more likely to get the best rate available. And don't forget to shop around, because how else will you know if the credit union up the street has a better rate for you than the big national bank?