Shopping For Mortgage Rates: 5 Useful Tips For Getting The Lowest Rate 

By Alvaro Moreira
12 min read

It Doesn’t Take Long To Shop For A Mortgage Rate

When you find a home you are interested in buying, you might be tempted to lock your mortgage rate in quickly – especially when the market is competitive.

The same is true for refinancing when you want to get a really low mortgage rate while they are still available. 

However, if you move too quickly you could end up getting a bad deal. Over a 30- or 15-year loan term, having just a slightly higher rate could add thousands of dollars worth of interest.

Even if you feel the clock is ticking, you always have time to explore the various options that are available to you. Here is how to do it. 

Tips For Shopping For Mortgage Rates: Important Takeaways  

Follow these easy mortgage shopping tips to ensure you receive the best deal:

Don’t choose your lender based on advertised rates. Most likely they will not be the same rates that will be offered to you.

Do not accept the very first offer you receive. Most likely you will lose some savings that way. 

Don’t take a lender who has been recommended to you at face value. Just because a lender is the best one for a family member or friend doesn’t necessarily mean they will be best for you. 

Don’t take a loan out with your bank simply because it is easy and convenient. You might not be offered the best deal by your current bank. To make sure, it is essential to compare offers.  

Don’t hesitate to negotiate. Lenders will frequently offer lower fees or rates than their initial offer. 

You can save thousands of dollars on a loan for your new home if you follow these tips. 

How To Shop For Mortgage Rates Using The Following 5 Steps 

It isn’t hard to shop for a mortgage rate, and you can easily save thousands of dollars. 

Research has shown that over the life of a loan borrowers can save around $1,5000 by simply getting one additional quote – and they can save $3,000 or even more if they get five quotes. 

However, you need to take the right approach when you shop for a mortgage. There is more involved in simply comparing rates online. In order to find the lowest rate to meet your financial needs, it is essential to be a strategic shopper. 

Here is how to do it: 

1. Don’t Choose Your Lender Based On Advertised Rates 

Many mortgage lenders and banks display their current mortgage rates only. It only takes a few minutes to check the advertised rates, select the lowest, and then consider yourself done. 

How it is practically guaranteed that you will not get the best deal using this strategy. 

Why? Because your situation is not reflected by advertised rates. Online rates, in fact, usually represent the ideal borrower – one who has low debts, excellent credit, and a down payment of 20 percent or higher. 

Unless you exactly meet the criteria, the interest rates that you offered are going to be different from those displayed online. 

To find the actual best interest rate for you, it is necessary to get rate quotes from 3-5 lenders at least. To apply you will need to fill out a pre-approval application and provide the following: 

Personal contact information

Identification such as your Social Security number or driver’s license 

Details on the property that you are refinancing or buying 

2-3 months of bank statements 

Investment, retirement, accounts, and other assets statements

Recent pay stubs

W-2 form or for self-employed borrowers 1099 form 

The lender is also going to have a credit run and get your score. The rate that you offered will be significantly impacted by your credit history, so make sure your score and report are polished as much as possible before you apply. 

Typically, rate quotes can be applied for online, so that part of the mortgage process is fairly easy and quick. 

2. Do Not Accept The Very First Mortgage Rate Offer That You Receive 

Even if you think you don’t have a lot of time, it is critical to see rates from other mortgage lenders as well. 

Lender fees and interest rates can have a significant impact on the amount that you will pay. That is why it is essential to ensure that you get the best deal possible. 

Here is a quick example to check out: 

Loan Amount: $300,000

30-Year Mortgage Rate

Monthly Loan Payment

$1,350 at 2.75%

$1,390 at 3% 

Total Interest Paid Over 30 Years

$140,900 at 2.75%

$155,300 at 3% 

Difference: + $14,400

In our example, a rate that is 0.25% higher increases your monthly mortgage payment by $40. That might not seem like a lot, however, if you stay in the house for the entire life of the loan it will add up to paying more than $14,000 extra. 

If you see better rates after panicking and settling for a higher interest rate, you will be kicking yourself. 

If family members and friends had a positive experience working with a certain mortgage company they might encourage you to work with them as well. However, your situation might not be the same as theirs.

It is okay to check out someone who has been recommended by a friend or family member but other home loan options should also be explored. 

You might be searching for a different loan product, and you might have a better or worse credit score. Depending on what priorities a lender has, all of them favor certain kinds of borrowers – for you, it might not be as competitive as it is for a friend. 

Lenders frequently list on their websites the kinds of special mortgage programs and loans they offer, so before you apply, do some research. 

4. Don’t Default To Using Your Current Bank Just Because It Is Convenient.

It can be nice to have all of your finances kept under one roof. However,  if the best overall deal and best rate are not offered by your current bank, or they do not offer the right loan program to meet your needs, then it is better for you to use a different lender to get a mortgage. 

It might also take big banks longer to process your application, and they frequently hold traditional work hours that might not work well with your schedule.   

More flexible customer service options might be offered by online lenders. Digital lenders also frequently will have faster turnaround times when it comes to mortgage applications. 

Definitely find out what your bank has to offer. Just don’t feel obligated to get a mortgage with them. Many banks end up selling loans to a mortgage servicer, so you might not end up working with your bank over the entire life of the mortgage. 

5. Be Willing To Negotiate

Lenders control the fees and rates they offer. To earn your business, they will often be open to negotiating. Say you are offered a lower rate by Lender A, but much lower upfront fees by Lender B. Show Lender A the loan offer you got from Lender B and ask if they can beat or match it. 

Even if a lender is unable to lower their rate very much, they might be able to offer other incentives or discounts to make the loan worthwhile. 

For example, your origination fee could potentially be lowered by a lender. This could significantly lower your closing costs. 

mortgage rate

How To Be An Efficient And Fast Rate Shopper 

Let’s now discuss some of the smart rate shopping moves that you can make. 

Get recommendations from your real estate agent. Real estate agents frequently have inside information on which lenders are the best for different kinds of buyers. Your agent can provide you with several names that you can contact, along with background information on various lenders as well as reviews from past clients. They might also be able to give you insights into the levels of customer service or personalization provided by each lender. 

Online comparison sites can be used to shop for multiple rates at the same time. It is a fast way to receive several quotes. Just make sure to take a screenshot of the results or save a copy. Lenders might not be required to honor the offers that you receive, so you will want to have proof of the results. 

Apply with different kinds of lenders. Consider applying with online lenders and credit unions along with banks. This can be especially useful if you are having a hard time finding a good rate or getting approved. Mortgage startups and other types of alternative lenders might have loan programs that are more flexible that might help get you approved to get an affordable loan. To make their offers even more attractive, they might waive their origination fees or other kinds of upfront costs. 

If you are not sure about the offer details, ask questions. When you are provided with an offer by a lender, you will be given a Loan Estimate document. It will list the interest rate, loan amount, homeowners insurance, prorated property taxes, and closing costs, along with other important information. Speak up if anything seems unclear or off. You want to make sure you understand all of the details before you make such a very important decision. 

In order to find the best mortgage rate, you will need to put in some work. However, the effort and time that you put in should definitely pay off. 

You can potentially save thousands of dollars. So the amount of time that you spend looking for a lower mortgage rate can potentially give you the best hourly rate that you can ever earn. 

When Can A Mortgage Rate Be Locked In?

After you get a mortgage preapproval you may be able to lock in the rate. However, you will be required by most lenders to find a property and then submit a signed purchase agreement before you will be able to lock in your rate. 

If you are refinancing, your rate can be locked as soon as you have been approved since the property has been identified already. 

Locking in your rate means it cannot increase or decrease – no matter what is happening in the market – as long as the loan closes within the rate lock period that has been set. 

Be aware that the loan terms and rate on your pre-approval letter will only be binding if a lender is able to verify all of your finances in the underwriting process. If anything is found to be amiss by the underwriter, the offer might be subject to change. 

In this situation, your mortgage broker or loan officer will guide you through the next steps that need to be taken to get approved and lock in your rate. 

FAQs On Mortgage Rate Shopping 

How Do Lenders Determine My Mortgage Rate?

The interest rate that you are offered is going to depend on a number of different personal factors such as your financial history, down payment amount, debt-to-income ratio, and credit score.   Your rate will also depend on mortgage loan details such as the loan term, type of loan, and whether it is a fixed-rate or adjustable-rate mortgage. Your rate will also be affected by the lender you decide to work with and the overall economy.  

When Shopping For A Mortgage What Are The Important Things That You Need To Know?

When shopping for a mortgage, there are 3 key things that you need to know. First of all, advertised rates do not provide you with a good comparison tool since most likely they will not be a reflection of the rate that you are actually offered. To know what your actual rate is you will need to apply with lenders.

The second key to be aware of is that lenders set their own fees and rate. So if you are able to obtain multiple rate quotes it may give you leverage for negotiating a better deal. The third key is that discount points are often included in advertised rates. That can make some rates appear to be artificially low. So make sure you pay close attention to whether points are included in your quoted rates or not. 

When Should I Begin To Shop For A Mortgage?

Before you start to look for a house you should ideally get preapproved to get a mortgage. You will then know what your price range is and have a good idea of what your monthly payment and rate will be. However, it isn’t necessary to begin to do any comparison shopping until you have obtained a purchase agreement. At this point, you will be able to receive finalized mortgage quotes that are based on the actual loan terms and the price of the property. 

How Many Places Do I Need To Shop For A Mortgage?

It is recommended by most experts that you shop with 3-5 mortgage lenders at least. Freddie Mac’s research suggests that homeowners can save an average of $3,000 if they compare 5 lenders or more. However, there is no maximum number. The more places you go shopping for a mortgage, the better your chances are of finding less expensive closing costs and/or a lower interest rate. 

Is It Possible To Have More Than One Mortgage Offer?

Yes, you can receive an unlimited number of loan offers. Until you sign the final closing documents, you are under no legal obligation to follow through on a loan. So it doesn’t hurt to get multiple quotes. Many lenders also offer free preapproval, so you don’t need to be concerned about cost. To be sure, just ask if there is an application fee before you get preapproved. 

Does Mortgage Shopping Harm Your Credit?

When applying for a rate quote, a hard credit pull is done by lenders. Your FICO score will typically be dinged by five points at the most. However, as long as all of your mortgage quotes are obtained within a 15-30 day window of time, these pulls will be counted by the credit bureaus as just one inquiry. So your credit score will not be hit more than once. 

What Score Will I Need To Have To Get The Best Mortgage Rate?

Typically, the best mortgage rates are given to borrowers who have credit scores of 720-740 and higher. Credit tiers are used to determine mortgage rates, so even if your score is raised by just a couple of points, at times you can receive a better rate. For example, if you are able to increase your FICO score to 740 from 735 before buying a house it can make a significant difference in your monthly mortgage payment and rate.

What Is The Difference Between Apr And Interest Rate? 

The mortgage interest rate is a representation of the yearly cost of borrowing from a lender. APR (annual percentage rate) is a broader measurement representing a home loan’s total cost, which includes all of the upfront fees and the yearly interest. Those costs are expressed as an annual percentage of the amount of the loan and assume they are spread over the entire loan term.

What Kind Of Mortgage Offers The Lowest Rates?

Typically, the lowest interest rates are offered by VA loans. Other government-backed loans, which include FHA and USDA loans, also often have below-market mortgage rates. However, there are mortgage insurance payments that come with these kinds of mortgages which increase the total cost. Typically, conventional loans offer the best mortgage rates to borrowers who have strong credit and big down payments (or a high amount of home equity for mortgage refinances). 

Are Lower Mortgage Rates Received By First-Time Homebuyers?

Not usually. First-time homebuyers usually are offered the same interest rates that are offered to refinancing homeowners and repeat buyers. Lower rates are offered by certain specialized first-time buyer programs. However, they typically come with private mortgage insurance (PMI). This can result in the savings being balanced out by the extra monthly PMI expense.