How to shop for a mortgage and find the best mortgage rate fast

Casey Morris
The Mortgage Reports contributor

Mortgage rate shopping doesn’t take long

When you find a house you want to buy, your impulse may be to move quickly to lock in a mortgage rate — especially in a competitive market.

The same goes for refinancers who want to score ultra-low mortgage rates before they’re gone.

But you don’t want to move so fast that you end up with a bad deal.

Even a slightly higher rate can add tens of thousands of dollars in interest over a 15- or 30-year loan term.

There’s always time to explore your options, even if the clock is ticking. Here’s how.

Compare mortgage and refinance rates (Jul 27th, 2021)

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How to find the best mortgage interest rate

The first step toward finding the best mortgage interest rate available to you is to apply with at least three mortgage lenders.

You want to compare their rates, as well as any other fees, costs, or discounts associated with their loans.

All this information can be found on the Loan Estimates you’ll receive from each lender after applying for a rate quote.

To make sure you get the best deal — especially if you’re in a hurry — keep these four mortgage shopping tips in mind.

1. Don’t accept the first mortgage rate offer you get

Even if you feel that time is of the essence, it’s important to see the rates other mortgage lenders come up with.

Interest rates and lender fees significantly impact how much you’ll pay, so it’s really important to make sure you’re getting the best possible deal.

Take a look at one quick example:

Loan Amount $300,000
30-Year Mortgage Rate 2.75% 3.0%
Monthly Loan Payment $1,350 $1,390
Total Interest Over 30 Years $140,900 $155,300
Difference + $14,400

Here, a 0.25% higher rate adds an extra $40 per month to your mortgage payment. That may not seem like much, but it amounts to over $14,000 if you stay for the life of the loan.

You’ll kick yourself if you see a better offer after settling for a higher rate in a panic.

2. Don’t take lender recommendations at face value

Friends and family may encourage you to work with their mortgage company if they had a good experience. But your circumstances may be different from theirs.

It’s fine to inquire with someone your family member or neighbor suggests, but explore other home loan options as well.

Your credit score may be better or worse, and you may be looking for different loan products. Depending on a lender’s priorities — they all favor certain types of borrowers — it might not be as competitive for you as for your friend.

Lenders often mention the types of loans and special mortgage programs they offer on their websites, so dig around a bit before applying.

Get matched with a lender (Jul 27th, 2021)

3. Don’t default to your bank because it’s easy

Sure, it might be nice to keep all your finances with your primary bank.

But if your current bank doesn’t offer you the best rate and overall deal, or they don’t have the right loan program for your needs, you’re better off taking out a mortgage with a different lender.

Big banks may also take longer to process applications, and they often keep traditional work hours, which may not align with your schedule.

A digital lender might offer more flexible customer service options, not to mention faster turnaround times on mortgage applications.

By all means, see what your bank can do for you. Just don’t think you’re obligated to stick with them for your mortgage.

Many banks will sell your loan to a mortgage servicer anyway, so you wouldn’t end up working with them over the life of your home loan.

4. Don’t be afraid to negotiate

Let’s say Lender A gives you a lower rate, but you feel most comfortable with Lender B. There’s nothing to lose by showing Lender B the competing offer and asking if they can match or beat it.

Believe it or not, lenders have control over the rates they offer, and they’ll often negotiate to get your business.

Even if they can’t go much lower on the rate, they may be able to provide other discounts or incentives that make the loan worth it.

A lender could potentially lower your loan origination fee, for example, which would reduce your closing costs.

Hot to be a fast, efficient rate shopper

Now let’s talk about smart rate shopping moves.

  • Ask your real estate agent for recommendations. Real estate agents often have the inside scoop on which lenders work best for different types of buyers. They can give you several names to contact, as well as background information on each lender, and reviews from clients who have worked with them previously. They may be able to provide insights into the level of personalization or customer service each one provides
  • Use online comparison sites to shop multiple rates at once. This is a quick way to get several quotes — but make sure you screenshot or save a copy of your results. The lenders may be required to stick with the offers you get, so you want proof of what comes up
  • Apply with several different types of lenders. In addition to banks, consider applying with credit unions and digital lenders. This is especially helpful if you’re struggling to get approved or find a good rate. Alternative lenders, such as mortgage startups, may have more flexible loan programs to help you get approved with an affordable loan. They may also advertise no origination fees or other cost reductions that make their offers more attractive
  • Ask questions if you’re unclear about the offer details. When lenders make you an offer, they’ll give you a Loan Estimate document that lists your loan amount, interest rate, prorated property taxes, homeowners insurance, closing costs, and other important information. If anything seems off or unclear, speak up. You want to be certain you understand the details before making such an important decision

The earlier you act, the better

Sometimes life happens quickly, and you find your dream home unexpectedly. In that case, you may be looking at choosing a lender in a single day.

But in the best-case scenario, you’ll get preapproved before you start looking at houses. That way, you know roughly how much you can afford.

Some real estate agents and sellers require you to be preapproved, or at least prequalified, before they’ll show you a property.

You’ll only need a letter from one lender at this stage to verify your home buying eligibility.

However, you can apply for preapproval with several lenders to get an idea of their rates and start thinking about which company you feel most comfortable with.

Getting preapproved also takes some of the pressure off when it comes time to buy. You will already have organized your financial documents, and you’ll be familiar with the application process.

If your preapproval application is denied, you want that to happen early on. Then you can work on building your credit and reducing your debts to increase your chances of approval the next time you apply.

Start your home loan pre-approval (Jul 27th, 2021)

How do you know if you got the best mortgage rate?

Applying with three to five lenders will give you a sense of your options so you can be sure you’re choosing the best deal for you.

Another way to gauge your rate is to look at the average mortgage rates for that day in your market.

If you are applying with several lenders, make sure to do so on the same day to get your best points of comparison, as rates change daily.

Keep in mind that the criteria used to determine average rates may not apply to you.

Your actual rates are based on your credit report, down payment amount, debt-to-income ratio, and other factors. Your rate might also include discount points, which allow home buyers to pay cash upfront to lower their mortgage loan rate.

Advertised rates simply provide a rough guide to see if your offers are way off-base. They can also show you trends within the mortgage market.

If you are applying with several lenders, make sure to do so on the same day to get your best points of comparison, as rates change daily.

When can I lock a mortgage rate?

Getting pre-approval for a mortgage shows your borrowing power. A pre-approval letter states the amount you’re able to borrow — as long as your finances can be verified — as well as your likely interest rate and loan terms.

You may be able to lock in your mortgage rate after getting pre-approved.

That means your rate can’t rise or fall, regardless of what markets are doing, as long as your loan closes within the rate lock period.

However, most lenders will require you to find a property and submit a fully signed purchase agreement before you can lock.

If you are refinancing, you can lock as soon as you apply if you wish, since the property is already identified.

Keep in mind that the rate and loan terms on your pre-approval letter are only binding if the lender can verify all your finances in underwriting.

If the underwriter turns up anything amiss, the offer may be subject to change.  

What is the underwriting process?

Before the loan can close, your loan officer or mortgage broker will ask for your W-2s, tax returns, bank statements, employment verification letters, and other financial documents.

They’ll use this information to confirm your debt-to-income ratio, employment status, and annual income. This information, along with your FICO score, helps the lender identify your risk as a borrower and set your loan’s interest rate.

Despite having a preapproval letter, it’s possible your loan could be denied in underwriting if the lender can’t confirm your income or discovers a foreclosure in your credit history. In this case, you’d get a denial letter explaining the reasons your loan didn’t go through.

If you initial loan application is denied, don’t lose heart. You may be able to get approved by another lender or via a different loan program.

If this happens, don’t lose heart right away. Keep shopping or ask your loan officer whether the lender has mortgage programs designed specifically for you.

If you’re a veteran, for example, a VA loan could offer better rates and terms, plus a VA loan doesn’t require ongoing mortgage insurance.

Or, if you need help paying closing costs so you can lower your loan amount, your loan officer or real estate agent should know about assistance programs in your area.

Getting approved for a home loan is often a matter of finding the right loan program for you.

Your monthly payment: more than an interest rate

A lower interest rate can save thousands of dollars over the life of your loan. But there’s more to your monthly payment than your annual percentage rate.

Home buyers and homeowners looking to refinance should also pay attention to:

  • Loan term: A 15-year mortgage saves money on interest but requires higher monthly payments. A 30-year loan’s longer repayment period allows for lower monthly payments. However, you’ll pay more interest overall because of the longer term
  • Adjustable-rate vs. fixed-rate loan: When you have an adjustable-rate mortgage, your monthly payment could fluctuate each year because your loan’s interest rate can change with the markets (after your locked-in intro rate expires). A fixed-rate loan’s interest rate never changes, so your principal and interest portion of your monthly payment wouldn’t change either
  • Private mortgage insurance: Conventional loans require private mortgage insurance (PMI) unless you make a 20% or larger down payment. These mortgage insurance premiums would increase your monthly payment. If you put less than 20% down, you can cancel PMI after your loan-to-value ratio decreases to 80%
  • FHA Mortgage Insurance Premiums: FHA loans offer mortgages to home buyers with lower credit scores, but they also require mortgage insurance. You’ll have to pay part of the insurance upfront and the rest monthly. If you put down 10%, your ongoing MIP payments will stop after 11 years; if you put less than 10% down you’ll be paying MIP for the life of the loan
  • Property taxes and homeowners insurance: Most homeowners break their annual property taxes and homeowners insurance premiums into monthly installments, which are added to their mortgage payments. The mortgage company uses the money to pay your insurance and tax bills behind the scenes

When you’re comparing mortgage offers, make sure the Loan Estimates you receive include all the same terms. That way you’ll get a fairer comparison between lenders.

If you compare quotes for a 15-year and 30-year mortgage, for example, you’re going to be looking at very different rates and monthly payments.

Check your rates. Start here (Jul 27th, 2021)

A good credit history can lower interest rates

Mortgage rates today might be ultra-low. But your own rate will depend on your credit history and other personal financial data.

Most mortgage lenders will base your rate partly on your FICO score. The higher your credit score, the lower your rate — especially if you’re using a conventional loan.

Since a mortgage loan is secured by the home you’re buying, you can get a good mortgage rate even if you don’t have an excellent FICO score. But a lower credit score could limit your borrowing options, while a higher credit score could help you access today’s best mortgage rates.

If you’re trying to lock in a rate for buying or refinancing today, you won’t have time to repair your credit.

But if you’re planning ahead for home buying next year or even in a few months, you still have time to upgrade your credit history.

Pay down your credit card balances, make sure you make on-time payments on all your bills, and don’t close or open any credit accounts unless absolutely necessary.

You should monitor your credit score closely as you get ready to lock in your rate.

Today’s mortgage and refinance rates

If you’re here, you probably already know that mortgage and refinance rates are near all-time lows.

This is a rare opportunity to lock in a historic rate before they rise again.

Just make sure you explore all your options, because the first rate you’re offered is hardly ever the best deal.

Luckily, online rate quotes and digital lending make is easy to find a low rate fast. So even if you’re in a hurry to lock, you still have time to shop.

Verify your new rate (Jul 27th, 2021)