Mortgage rates today are far from the historic lows that new homebuyers were able to score through 2020 and 2021. You can find competitive mortgage rates around 6% to 7% APR on average today, depending on the loan term.
But that doesn’t mean you’re out of luck if you’re shopping for a home in 2023. Even small differences in your mortgage interest rate can save you money over the lifetime of your loan. By taking the following steps to prepare a solid loan application and score the best possible rate you can, you’ll reap the benefits for years to come.
Like federal interest rates, there’s a chance mortgage rates could continue rising this year. Don’t wait to start comparing the best mortgage rates you can qualify for now.
3 ways to get the best mortgage rates
Here are three things you can do now to make sure you get a great mortgage rate.
Boost your credit score
The information you include on your loan application can make a huge difference in the loan terms you qualify for.
“Your credit score is still going to be the biggest factor in determining if you will get the best rate,” says Colin Zizzi, CFP, founder of Zizzi Investments.
Before you apply for a mortgage, check both your credit score (which you can often find online from your bank or credit card company) and your credit report. You can access your full credit report for free from each of the three major credit bureaus.
Comb through the reports for any errors that could be hurting your credit score. If it’s still not where you’d like it to be, start taking steps now to improve it — like reducing your overall debt balance and paying all your bills in full and on time. Also, remember to avoid applying for any new credit or loans before taking out a mortgage. The hard credit check could temporarily bring down your credit score and keep you from getting a top rate.
Consider different loan details
If you’re flexible on the details of your mortgage loan, you may be rewarded with the potential to get a lower interest rate.
For one, your loan term is a big factor to consider. Many lenders offer slightly lower rates on shorter 15-year mortgages than on 30-year mortgages. In fact, the average mortgage rate for a 15-year mortgage as of July 10 is more than half a percentage point lower than what’s offered for a 30-year mortgage, according to data from Bankrate. While a 15-year mortgage may carry higher monthly payments, you could pay less over the lifetime of the loan.
Another type to consider is an adjustable-rate mortgage or ARM. This type of mortgage generally starts with a lower rate that adjusts (up to a cap) over time. Certain types of homebuyers may also qualify for government-backed loans, which tend to offer among the lowest possible rates. However, these loans may have strict specifications that you’ll need to meet before you can qualify.
Shop around and compare
If you’re quoted an unfavorable loan rate from one lender, there’s no reason to settle for it — at least not without comparing what else you may qualify for. Plus, the earlier you get started, the better off you may be.
“As always, shop around with different banks and brokers, and do this well before starting to look at houses,” says Quinn Arnold, CFP, co-founder of Arnold and Mote Wealth Management.
Once you’ve settled on the best type of mortgage loan for you, start getting preapprovals and loan estimates from different lenders. It helps to do this after you’ve settled on your preferred term and loan type, so you can make a consistent comparison across different lenders. When you shop around for your mortgage within a 45-day window all the different credit checks that lenders make are also recorded as a single inquiry on your credit report, according to the Consumer Financial Protection Bureau.
The bottom line
Today’s mortgage rates are higher across the board than they once were. But taking steps to make sure you apply with the best possible credit score, researching the type of mortgage that best fits your needs and comparing multiple lenders can help you get a solid mortgage even in today’s higher rate environment.
With mortgage interest rates consistently rising, timing is also important. Locking in a great mortgage rate sooner rather than later can help you ensure you get the rates you’re pre-approved for before they increase again. Start your search by exploring today’s best rates here!