Mortgage rates won’t drop much in the next few months, but you don’t have to put off your homebuying plans.
The mortgage rates you see advertised online are simply averages based on what borrowers are being offered at a given time. Depending on your financial profile, you could qualify for a significantly lower rate. By taking steps to improve your credit score and negotiating with multiple lenders, you can secure a better deal.
In other words, if budgeting for a near-7% rate on your home loan is challenging right now, there are ways to reduce it to 6% without waiting years to enter the housing market.
A lower mortgage rate saves you money
A 1 percentage point difference in your mortgage rate can translate to about 10% savings on your monthly mortgage payment, and tens of thousands of dollars in savings over the course of your loan.
For instance, let’s say you buy a home for $400,000 and make a 20% down payment on a 30-year fixed-rate mortgage. The difference between a 7% rate and a 6% rate gives you a monthly savings of $210.
Here’s a quick look at how monthly mortgage payments compare for the same home with a 7%, 6% and 5% rate.
How to get a lower mortgage rate today
Taking some (or all) of these steps can reduce your rate by 1% or even more.
1. Improve your credit score
If your credit needs work, consider taking steps to raise your credit score before applying for a mortgage.
Lenders look at your credit score to decide whether you qualify for a home loan and what interest rate you receive. FICO credit scores range from 300 to 850, with 850 being the best score possible. Higher credit scores show you’ve managed debt responsibly in the past, so it lowers your risk to a lender. This can help you secure a lower interest rate and save big.
“The best mortgage rates and products are typically reserved for those with a credit score of 740 or better,” said Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage.
According to a 2024 Lending Tree study, when borrowers moved from the “fair” credit score range (580 to 669) to the “very good” range (740 to 799), they shaved 0.22% percentage points off their interest rate. That rate difference helped borrowers save $16,677 over the lifetime of a home loan.
