How to Find and Compare the Best Mortgage Rates

You may be familiar with some of the factors that affect the price of mortgage payments. Income ratio, credit scores, down payment, and more will all impact your odds of mortgage approval and the rate you'll have to pay.

But we have a secret for you: Some lenders may offer mortgage loans that come with additional hidden costs. In fact, the range of mortgage rates you receive could be quite vast, depending on the lenders you choose to approach.

Below are 6 questions to ask yourself before diving into the mortgage application process. The answers may surprise you and can help you unlock the secret to saving big on your next home loan.

What’s the Secret to Getting the Best Mortgage Interest Rate?

Getting a single mortgage offer can be a gamble, so shop around to find the best rate available to you. The difference between getting lucky or unlucky could cost you tens of thousands of dollars over the life of a $350,000 loan, which is why it’s important to compare offers instead of leaving your mortgage rate to chance.

Whether you want to think about that money as a year of college tuition, a fancy coffee every day for 30 years, or a chunk of retirement savings, you deserve to keep that money in your pocket. Shop around, compare offers, and take control of your mortgage.

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6 Questions to Research While Mortgage Loan Shopping

There are a number of factors that can impact your mortgage rate, some of which are out of your hands. This can include lender business models, hidden fees, and available information on the marketplace. Below are 6 questions to explore to help you better understand the interest rates you’re offered and how you may be able to land a better one.

1. How Do Lenders Determine Their Rates?

Lenders are generally privy to information about what rates they should charge their borrowers, while borrowers typically have little access to information about what a fair deal may look like for their particular scenario. Unfortunately, that information asymmetry can result in uninformed borrowers who end up overpaying for their mortgage.

2. Why Do Different Mortgages Vary In Price?

Lending is still a business, and one lender’s business model may be different from the next. This means Lender A may have different policies than Lender B when determining who they will take on as borrowers and the rates they will offer them.

Take the simplified analogy of a car dealership, as suggested by a digital pamphlet from the U.S. Department of Housing and Urban Development. If a car dealer wanted to sell as many cars as possible, they could price their cars lower and make a smaller profit on each sale. Alternatively, a different car dealer could decide they're ok selling fewer cars, but want to make a larger profit on each sale. This same principle applies to mortgage lenders and home loans.

3. How Do Mortgage Lenders Decide Who To Approve?

Lenders typically follow similar underwriting standards when determining who qualifies for a mortgage, but they may differ in how they evaluate individual borrower profiles and applications.

For example, if you happen to be looking for a condo instead of a single-family home, or you're a freelancer rather than a full-time employee, or you're looking to buy in an area with lower average home prices, those are all details that can factor into the price of your loan. Your credit profile, which includes factors like your credit history and debt-to-income ratio, can also impact the rate you may receive.

There isn't one universal guide for mortgage rates, but you can generally get a sense of what rates you can expect by researching your area, type of mortgage, and what the average homeowner with your credit report and income ratio pays.

4. How Can Home Buyers Get The Best Mortgage Deal?

High stakes and tight timelines can work against borrowers. If you want the best deal on your dream house, it can be important to take some time to shop around and also come to the table prepared and with the support of a trusted professional, like a real estate agent or mortgage loan officer.

• Shop around. Mortgage shopping can be cumbersome and time-consuming. It can feel all the more challenging because of the barriers put in place by some lenders, like long applications, hard credit checks, and deceptive advertising. However, while shopping around for a mortgage might be the last thing you want to do after a long home buying journey, it can help save you money in the long run.
• Find a real estate agent. It's also a good idea to find a real estate agent you trust before you step foot in your first open house. A great real estate professional will help guide you from the start of your buying process through the end of the mortgage process.
• Gather financial documents in advance. Additionally you should gather your financial documents, like a couple months of bank statements and tax returns from your last two years. Applying for a mortgage pre-approval can also provide you with an initial benchmark to help compare lenders and rates that may be available to you.

5. How Can You Find The Best Mortgage Rates?

Modern online tools can allow potential mortgage borrowers to compare rates for their profile. By entering some basic financial information, you can get a better sense of how different lenders operate and compare rates.

6. How Can You Avoid Surprises?

When shopping for a mortgage, keep in mind that there are all sorts of additional costs beyond the mortgage payments. These aren't exactly hidden costs, per se, but closing costs, insurance costs, and maintenance expenses can all take you by surprise if you don't factor them into your calculations.

To help prepare yourself, look up the average costs of maintaining the sort of home you're trying to buy so you can be fully prepared.

You may also realize that there aren't any rates that make sense for you right now, and you may need to save more money, earn more money, or improve your credit score before you embark on your homebuying journey.

The Bottom Line

Preparation is key. While your path to obtaining a mortgage may differ from your neighbor’s, understanding how the real estate market works and how to ready yourself can be imperative to a positive home buying experience and landing a mortgage that works for you.