Unlocking Lower Mortgage Rates: 4 Strategic Moves You Can Make Today

Photo byAnchiy/Getty Images

Homebuyers weary of the wait for a drop in mortgage rates don’t have to sit idly by. A new report from Realtor.com® reveals that proactive measures can yield substantial savings on mortgage rates, potentially cutting them by up to 1.5 percentage points. For those eyeing a $500,000 home purchase with a 20% down payment, this could translate to a remarkable $400 in monthly savings, amounting to $4,800 annually.

1. Compare Lenders for Bigger Savings

The most straightforward yet impactful step is to shop around. By seeking quotes from multiple lenders, buyers can uncover differences of up to 86 basis points between the highest and lowest offers. “The disparity in rates by simply comparing offers is striking,” says Ralph McLaughlin, senior economist at Realtor.com. “We’re talking about potentially a full percentage point difference.”

Despite this, many buyers still settle for the first offer they receive. According to a May study from LendingTree, over half of homebuyers only consider one loan offer, with baby boomers being notably less likely to compare rates compared to millennials. Leveraging tools like Realtor.com’s mortgage comparison tool can make this process easier and more effective.

2. Boost Your Credit Score

Improving your credit score is another powerful way to lower your mortgage rate. With the average U.S. credit score at 705, many fall short of the very good or excellent bracket (750+), which could lower mortgage rates by an average of 39 basis points. Simple actions like maintaining timely payments and managing credit card balances responsibly can swiftly enhance your credit score. Keeping your credit utilization below 30% can also make a significant difference.

3. Increase Your Down Payment

Aiming for a 20% down payment not only reduces your loan-to-value (LTV) ratio to 80%, but also secures lower rates. The study highlights that borrowers with an LTV ratio under 80% enjoy rates that are 18 basis points lower compared to those with a higher LTV ratio. Additionally, a 20% down payment often eliminates the need for private mortgage insurance, further decreasing monthly costs.

4. Manage Your Debt-to-Income Ratio

Maintaining a debt-to-income ratio below 30% can lead to marginal improvements in mortgage rates. This ratio, which measures the proportion of income devoted to debt payments, affects rates and can also bolster your credit score. While the direct impact on rates may be modest, reducing this ratio can enhance overall financial health and borrowing terms.

With average 30-year fixed mortgage rates currently hovering around 6.5%, the impact of these strategies is more significant than ever. As the Federal Reserve signals potential cuts to its benchmark rate, now is the ideal time to implement these measures and capitalize on potential savings.