How to Get the Best Mortgage Rate

Buying a home is one of the biggest investments a person can make. And when you’re searching for your desired home, it’s important to think about the mortgage rate you'll get. Your rate will directly affect your monthly payment and how much you’ll owe over the life of your loan. Lowering your mortgage rate can help you save more over time.

While some factors affecting rates are tied to broader economic factors, there are several steps you can take now to help you qualify for a good mortgage rate. Whether you’re actively house hunting or planning for the future, understanding how to get the best mortgage rate can give you an edge on your home-buying journey. 

Why is a lower mortgage rate important?

When you’re focused on finding a home, it can be easy to overlook how much your mortgage rate matters. Higher interest rates lead to higher monthly mortgage payments, which takes up more of your housing budget. Securing a lower rate can make a big difference in your monthly payments and long-term financial health.

For example , dropping your rate by just half a percent (say, from 7% to 6.5%) on a $300,000 home with 20% down saves you about $80 every month on your principal and interest payment. That’s more than $28,000 over a 30-year loan! That’s money you could use for home improvements, retirement savings or other financial goals.

Representative Example

$240,000 30-year mortgage loan at 7% interest rate = $1,597/mo.

$240,000 30-year mortgage loan at 6.5% interest rate = $1,517/mo.

Obtaining a lower interest rate is a win-win situation. You’ll be able to afford more home today and keep more money in your pocket for tomorrow.

What affects your mortgage rate?

It’s important to understand what raises or lowers your mortgage rate. You don't have control over outside factors, but you do have some power over several key elements that lenders consider when setting your rate.

Here are several factors that can impact your mortgage rate.

Fortunately, you can act on these personal factors to set yourself up as a great candidate for a favorable mortgage interest rate.

9 Ways to Get a Better Mortgage Rate

Getting a great mortgage rate starts by putting yourself in a strong financial position. Here are steps you can take to help qualify for a loan rate that fits your needs.

1. Boost your credit score.

Review your credit report for errors and work on improving your score. Even a small increase can make a difference in your rate.

2. Show stable employment. 

Lenders like to see steady income and consistent employment—ideally 2 years or more in the same field. If you’re planning a job change, consider the impact it’ll have on the mortgage process.

3. Lower your debt-to-income ratio. 

Pay down your existing debts, especially credit cards. A lower debt-to-income (DTI) ratio shows lenders that you have room in your budget for mortgage payments. Many lenders prefer a ratio lower than 36%. Here’s an example:

$5,000 monthly income X 0.36 = $1,800 maximum monthly mortgage payment

The highest DTI ratio a borrower can have to qualify for a mortgage typically is 43%.

4. Save for a larger mortgage down payment. 

A bigger down payment may lead to a better rate. Plus, saving up more money could help you avoid private mortgage insurance (PMI) if your loan charges PMI for putting less than 20% down.

5. Watch market trends and mortgage rates. 

Keep an eye on current interest and mortgage rates and market conditions. This can help you recognize a good rate when you see one so you can strategically plan your home purchase.

6. Choose the right loan type for your situation. 

Consider different loan types to make sure you get your best possible option. A 15-year mortgage typically offers lower rates than a 30-year loan. For servicemembers, a VA loan may offer better interest rates with no down payment required. There are also FHA loans with relatively low-interest options to consider if you’re a first-time buyer.

7. Compare multiple mortgage lenders. 

Don’t feel like you have to take the first rate you’re offered. Comparing different mortgage lenders can help you secure the most favorable rates and terms. Shop around and get preapproval quotes from several lenders so you can compare their rates, fees and terms.

8. Check for special buyer programs. 

If you’ve never purchased a home before, review low-interest FHA loans and first-time homebuyer incentives, grants or other special programs you might qualify for. These may offer competitive rates and benefits such as down payment assistance. 

9. Consider buying mortgage points. 

If you plan to stay in your home for a long time, it might make financial sense to pay for mortgage points (also known as "discount points") to lower your interest rate. Our mortgage calculators can help you run the numbers and estimate your options. 

What’s the lowest mortgage rate I can expect?

Current market rates are just a starting point. Your actual rate will depend on your unique financial situation and the type of loan you choose. 

One smart way to get a realistic idea of your best possible rate is to run the numbers with a mortgage calculator. You also can call lenders or visit their websites to find out their current rates for different types of mortgages. These can include fixed-rate conventional mortgages and adjustable-rate mortgages (ARMs) as well as FHA and VA loans. 

Lenders assess rate eligibility by comparing your total monthly debt payments, such as car loans and credit card debts, to your gross monthly income. This helps determine mortgage affordability. Before approval, they’ll also look at your loan-to-value (LTV) ratio. This metric is the loan amount divided by how much the property is worth. A lower LTV ratio means lenders may be encouraged to offer you a good rate.

We’re here to help you find a great rate

At Navy Federal, we believe everyone deserves a chance at affordable homeownership. That’s why we offer more than just mortgages. Explore our home-buying resources to help you make an informed decision about your next purchase.

When you’re ready to apply for a mortgage, our loan officers can walk you through your home loan options, including VA loans, a Military Choice loan if you’ve exhausted your VA loan benefit and our Homebuyers Choice loan, which is great for first-time homebuyers. 

If you have some work to do on your credit score, schedule a free consultation with a Navy Federal financial counselor so they can help you create a plan to strengthen your financial profile before you apply. When you’re ready to take the next step, our loan officers can offer a personalized rate quote based on your specific situation.