10 Ways to Get a Lower Mortgage Rate

1. Use a First-Time Home Buyer Mortgage Program

There are more than 3,000 public and private first-time home buyer programs available. Benefits may include interest rate discounts, cash grants for closing costs, tax credits, and forgivable loans for making a down payment.

Congress is also discussing first-time home buyer programs that may help you get a lower mortgage rate, such as the Downpayment Toward Equity Act and the LIFT Act.

Another proposed program is the $15,000 first-time homebuyer tax credit, which would provide a refundable credit that could be used at closing to reduce your rate or applied to your tax return. This credit could effectively lower your borrowing costs and improve your purchasing power.

2. Shorten Your Closing Date Into 15-Day Increments

A mortgage rate lock is a lender's guarantee of a specific rate for a set period.

Lenders typically raise interest rates by 0.125 percentage points for every 15 additional days added to a rate lock.

When writing your offer, aim to close within a 15-day window. For example, close in 30 days instead of 31 or 45 days instead of 46.

3. Pay for Mortgage Discount Points

Discount points are one-time fees paid at closing to reduce your mortgage rate permanently. Each discount point costs 1% of your loan size and typically lowers your rate by 0.25 percentage points.

At today's mortgage rates, one discount point on a $200,000 mortgage costs $2,000 and saves approximately $11,880 in payments over the life of the loan. Use our mortgage calculator to see how different rates impact your monthly payment.

4. Fix Your Credit Score by 20 Points

If you have time before needing mortgage approval, improving your credit score can help you qualify for lower rates. Even a 20-point increase can make a big difference.

The earlier you begin to improve your credit score, the more you can benefit from better rates.

Fixing credit involves reducing balances, correcting errors, and using services like StellarFi for credit building, which may show results in as little as 30 days.

As Credit Scores Rise, Mortgage Rates Drop

Average mortgage rates for conventional loans based on credit scores when the loan-to-value exceeds 80%:

5. Increase Your Down Payment To the Next 5 Percent

For buyers using a conventional mortgage, raising your down payment in 5% increments can result in lower rates.

For buyers with excellent credit, moving from 5% to 10% down can lower the mortgage rate by 0.125 percentage points. On a $200,000 loan, this could reduce the payment by $16 per month. Compare mortgage lenders to see how different down payments affect your rate.

This technique is less effective with FHA, VA, and USDA loans.

6. Get Seller Concessions To Buy Discount Points

Seller concessions allow sellers to cover some of the buyer's closing costs, including buying discount points.

Seller concessions are negotiated by the buyer's and seller's agents as part of the contract. In For Sale By Owner deals, the buyer and seller negotiate directly.

Seller concessions can cover up to 3 , depending on loan type and loan-to-value. They cannot cover the down payment or commissions.

7. Do a Temporary Mortgage Rate Buydown

Temporary mortgage rate buydowns reduce your rate for 1-3 years but are not permanent. They work like non-permanent discount points.

A 3-2-1 buydown reduces your rate by three percentage points in the first year, two in the second, and one in the third. Afterward, the original rate returns for the loan's remainder.

Though temporary buydowns can provide upfront savings, they are often not cost-effective. For a full analysis, consult your lender.

8. Use an Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARMs) feature lower initial rates than fixed-rate mortgages. After a fixed period, the rate adjusts annually based on market conditions.

Today's ARMs include safeguards like limits on annual rate changes and do not allow negative amortization.

9. Use HomeReady or Home Possible Loans

Buyers in low- and moderate-income neighborhoods can benefit from lower rates with HomeReady and Home Possible loans.

These loans offer lower rates, reduced mortgage insurance, and lower closing costs. On a $100,000 loan, a half-point rate reduction can save $384 annually in principal and interest payments.

10. Get Multiple Mortgage Rate Quotes

Getting multiple mortgage rate quotes can save you money. According to Freddie Mac, getting two quotes can save an average of $1,500, while getting four quotes can save around $5,000 over the life of a loan.

Getting a Lower Mortgage Rate: A Real World Example

Imagine a first-time home buyer submitting an offer on their first home.

The buyer has pre-approval from a mortgage lender but is concerned about payment shock. They improved their credit score, earning a 60-point increase, which gave them access to lower rates.

They request seller concessions to buy discount points and ask for a closing within 30 days to lock in a lower rate. This helps reduce monthly mortgage payments and manage their budget.