When you apply for a mortgage, you may not pay the advertised rate. The best rates are for those homebuyers with the best credit scores. However, lenders are competitive, so you’d be wise to apply to several lenders at once. You’ll receive a loan estimate that you can compare side-by-side.
First, compare the interest rates. According to Nerdwallet.com, there are many factors that affect interest rates, from the economy to inflation, to the Federal Reserve’s overnight borrowing rates to banks. You can’t do much about that, but you can influence the factors that lenders look for.
If you have a credit score of 740 or higher, the risk of default is low enough that you will receive the lender’s best rate. A credit score of 620 or lower will give you fewer loan options and the highest rates. Lenders also look for the loan-to-value – code for how much money you’ll put down as a down payment. The more you put down the better the ratio.
The true rate you’ll pay is the annual percentage rate (APR). The APR is your mortgage interest rate plus other costs that have been rolled into the loan, such as points, fees, and other charges. You’ll be able to find that number under the “comparisons” section of your loan estimates.
Make sure that you’re comparing loans that the APR is consistent. For example, if the average 30-year fixed mortgage rate is 3.030%, then the APR is 3.250%.