The main levers that move your rate

Your mortgage rate depends on four things you can influence and one you cannot. The one you cannot is the market — the Federal Reserve's decisions and bond yields set a floor that all lenders work from. The four you can move are your credit score, the size of your down payment, the loan term you choose, and how many lenders you shop.

A 20-point difference in credit score can cost you 0.5% on your rate. A 10% down payment versus 20% can add 0.25% to 0.5%. Choosing a 15-year loan over a 30-year one typically lowers your rate by 0.25% to 0.75%. And shopping five lenders instead of one often uncovers a rate difference of 0.25% to 0.5%. These stack — you can move your rate by more than 1% by working all four levers at once.

Key Takeaways

  • Raising your credit score before you apply is the single most powerful move, because lenders use it to price risk and it affects every loan you shop.
  • Putting down 20% or more removes the mortgage insurance premium that lenders add to smaller down payments, which can save 0.5% or more on your rate.
  • Shopping at least three to five lenders and comparing their Loan Estimates side by side reveals real rate differences; one lender's 6.5% may be another's 6.0%.
  • Shorter loan terms (15 years instead of 30) carry lower rates, but the monthly payment rises significantly, so calculate what your budget actually allows.
  • Paying points (prepaid interest) to buy down your rate only makes sense if you plan to stay in the home long enough to recoup the cost.

Improve your credit score before you shop

Lenders pull your credit report and score the moment you submit a rate request. A score of 740 and above typically gets the best pricing; below 700, your rate climbs. The work to raise your score takes weeks or months, so do it before you start the mortgage process if you can.

The fastest moves are paying down credit card balances (your utilization ratio — how much you owe versus your limit — matters more than the absolute balance) and disputing any errors on your credit report. You can order your free report from annualcreditreport.com, the only official site. Errors are common and take 30 to 60 days to remove. Paying down a card from 80% utilization to 30% can raise your score 50 to 100 points in one or two billing cycles.

Do not open new credit accounts or close old ones in the three months before you apply. Both actions temporarily lower your score. If you have missed payments or collections, those age over time — a missed payment from two years ago hurts less than one from six months ago, but both still cost you.

Save for a larger down payment

Down payments below 20% trigger private mortgage insurance (PMI), a monthly fee the lender adds to your payment. PMI typically costs 0.5% to 1% of your loan amount per year, which translates to 0.25% to 0.5% added to your interest rate. Reaching 20% down eliminates it entirely.

If you cannot reach 20%, the next threshold is 10% down, which is cheaper than 5% down. A 10% down payment usually costs less in PMI than a 5% one, so if you have a choice, aim for 10%. Once you own the home and your equity reaches 20% (through a combination of payments and home appreciation), you can request PMI removal, though this takes time and the lender may require a new appraisal.

The math is straightforward: if saving an extra $20,000 to reach 20% down takes you six months, and PMI would cost you $200 a month, you break even in 100 months. If you plan to stay longer than that, the savings are real. If you plan to sell or refinance in five years, PMI may cost you less than the opportunity cost of holding that extra cash.

Shop multiple lenders and compare Loan Estimates

Rate shopping is the single most actionable step you can take right now. Lenders price the same loan differently based on their cost of capital, their risk appetite, and their volume goals. A rate that is 6.5% at one lender may be 6.0% at another, and that 0.5% difference costs you tens of thousands over 30 years.

Contact at least three to five lenders: your bank, a credit union (if you are a member), a mortgage broker, and one or two online lenders like Better, LoanDepot, or Rocket Mortgage. Each will provide a Loan Estimate within three business days. The Loan Estimate is a standardized form that shows your interest rate, points, closing costs, and monthly payment. Compare the interest rate column first, then the total closing costs, because a lower rate sometimes comes with higher fees.

All rate shopping within 14 days counts as a single inquiry on your credit report, so do your shopping in a tight window. After 14 days, each new inquiry is separate and can lower your score a few points. Once you have five Loan Estimates, you can negotiate — tell your top choice that another lender offered 6.0% and ask if they can match it. Many will.

Choose between a 15-year and 30-year loan

A 15-year mortgage carries a lower interest rate than a 30-year one on the same loan amount, typically 0.25% to 0.75% lower. The trade-off is that your monthly payment is roughly 50% higher. On a $300,000 loan at 6.5%, a 30-year mortgage costs about $1,900 per month; a 15-year costs about $2,900.

The lower rate on a 15-year loan is real, but the higher payment is the constraint for most borrowers. If your budget comfortably allows the 15-year payment and you want to build equity faster and pay less interest over time, it is the right choice. If the 15-year payment would stretch you thin or leave you with little emergency savings, the 30-year loan is safer. You can always pay extra toward principal on a 30-year loan to shorten it, but you cannot reduce the payment if it becomes unaffordable.

Understand points and when they make sense

A point is 1% of your loan amount, paid upfront at closing, to buy down your interest rate. One point typically lowers your rate by 0.25%. On a $300,000 loan, one point costs $3,000 and lowers your rate from 6.5% to 6.25%. Whether this is worth it depends on how long you stay in the home.

Calculate the break-even: if one point costs $3,000 and saves you $50 per month, you break even in 60 months (5 years). If you plan to sell or refinance before then, paying points is a loss. If you plan to stay 10 years or longer, points usually pay for themselves and then some. Most borrowers do not stay long enough to recoup points, so the default is to take the higher rate and lower closing costs.

Negative points (also called a lender credit) work in reverse: the lender gives you cash at closing to cover some costs, but your rate is higher. This is useful if you have limited cash for closing costs but plan to stay long enough that the higher rate does not cost you more than the credit you received.

Lock your rate at the right time

Once you have chosen a lender and rate, you will be offered a rate lock — a may provide that your rate will not change if market rates rise before closing. Rate locks typically last 30, 45, or 60 days. If rates fall during that period, you usually cannot take advantage of the drop (though some lenders offer a one-time float-down option).

Lock your rate once you have a clear closing date and your application is moving forward. Locking too early (before your home inspection or appraisal) risks the lock expiring before you close. Locking too late risks rates rising before you can lock. Most lenders recommend locking once your appraisal is ordered and your loan is in underwriting, typically 10 to 15 days before your expected closing date.

If rates are falling and you have not locked yet, waiting a few days may get you a better rate. If rates are rising, lock immediately. If you are uncertain, ask your lender what the market is doing — they see it in real time and can advise whether waiting or locking is the smarter move.

Frequently Asked Questions

Does my employment history affect my mortgage rate?

Employment history affects whether you are approved, but not the rate itself. Lenders want to see stable income and will ask for two years of tax returns and recent pay stubs. A job change does not disqualify you, but a gap in employment or a recent career switch may require explanation. Your credit score and down payment are what move your rate.

Can I get a lower rate by paying my mortgage with a specific bank account or setting up autopay?

No. Some lenders advertise small rate discounts (0.125% or less) for autopay or holding a checking account with them, but these are marketing tools and the savings are minimal. The real rate drivers are your credit score, down payment, and how many lenders you shop. Focus on those instead.

What if I have a co-borrower with a lower credit score?

Lenders typically use the lower score of the two borrowers to price the loan. If one of you has a significantly lower score, it may be worth having only the higher-score borrower apply, though this affects how much you can borrow. Run the numbers with your lender — sometimes the rate savings from excluding the lower-score borrower outweigh the smaller loan amount.

Should I wait for rates to drop before I buy?

Timing the market is difficult and often costs more than it saves. If you need a home now and rates are high, buying and refinancing later when rates drop is a common strategy. If you can wait and rates are historically high, waiting may make sense — but housing prices may rise while you wait, offsetting the rate savings. Consult with a financial advisor about your specific situation.