Your mortgage interest rate affects monthly payments and the total cost of your loan. It makes sense to do all you can to try to get the best rate possible. Unfortunately, many homebuyers aren't sure exactly how to do that.

This guide explains the key steps involved in getting the best mortgage rate so you can find the best rate on your home loan.

7 Tips to Secure a Lower Mortgage Interest Rate

Mortgage rates can vary based on many factors, including your location, inflation, market volatility, the Federal Reserve's benchmark interest rates, Treasury yields, investor sentiment, and economic conditions. Many of these factors are outside of your control.

However, there are also things that you can do to improve your chances of qualifying for the most affordable home loan. Taking these seven steps can get you on the right path.

1. Build up Your Credit Score

The minimum credit score to buy a house varies by lender and loan type. It's possible to buy a home even with a fairly low credit score using programs like FHA, VA, and USDA loans. However, a better credit score will give you more loan options, a broader choice of lenders, and a chance for a much better rate.

The good news is that you can take steps to build your credit score, such as making payments on time, paying down your current debt, and limiting the number of new accounts you open at once. As you improve your score, you can begin exploring all of your loan options.

2. Lower Your Debt-to-Income (DTI) Ratio

Lenders also look at how much debt you have relative to your income, because this tells them whether you've been responsible with borrowing or are likely to struggle to make payments.

Lenders differ in the required DTI for your mortgage, but a lower DTI will open the door to more loan types, approval by more lenders, and a better rate. Work on paying down what you owe to qualify for the most competitive home loan rates.

3. Show a History of Steady Employment

When deciding what rate to offer you, lenders consider risk. If you have a history of steady income, you're considered to be a less risky borrower because it's more likely you'll continue to earn that income.

Typically, lenders want you to have been at your job and earning a similar or increasing amount for at least two years. The more you earn and the more reliable that income seems, the better the rate you will probably be offered.

4. Increase Your Down Payment

Most lenders require at least some money down on a home, although this isn't always necessary with VA and USDA loans. When you consider how much your down payment should be, it's worth noting that a larger down payment usually qualifies you for a lower interest rate because you have more equity (and therefore more to lose if you default). If you have a lot of equity, it's also less likely that the lender would be left with uncovered losses if they had to foreclose.

5. Compare Mortgage Loan Types

There are different types of mortgage loans available for different borrowers, and the kind of loan you pick will affect your rate.

For example, VA and USDA loans are affordable options for borrowers without perfect credit or the money for a large down payment, while adjustable-rate mortgages (ARMs) may offer lower starting rates (although there's a risk of rates rising). Exploring all of the mortgages available to you will enable you to find the best terms.

6. Consider a Shorter Loan Term

Loans with shorter repayment periods are less risky for lenders because there's less time for you to default. On the buyer's end, there's less time for interest rates to change. As a result, you will usually be offered a lower rate on loans with a shorter term, such as 15-years versus 30-years.

Just remember that while a shorter loan term can mean a lower interest rate and cheaper borrowing costs over time, it also will result in larger mortgage payments since you are making fewer total payments overall.

7. Pay for Mortgage Points

Mortgage discount points allow you to buy down your rate. This means you essentially prepay interest, which saves money in the long run.

For each point you buy (which usually costs 1% of the loan amount), you reduce your rate by .25. Paying for mortgage points raises your upfront costs, but it can allow you to get more affordable financing over time and ultimately pay off if you stay in the home long enough.

How Much Can a Lower Rate Actually Save You?

A lower rate can offer significant savings, especially since you're paying your home loan for a long period of time.

You can use a mortgage payment calculator to compare the cost of different loans, so you can see your monthly and lifetime savings with a cheaper offer. The table below also shows how much different loans would cost you.

Even a relatively small 1% difference in interest rate can save you several hundred dollars per month and tens of thousands of dollars over time. If you can take simple steps to reduce your rate, it is well worth it.

Understanding Your Own Mortgage Rate

Shopping for mortgages online can help you compare rates and find the most affordable loan, but make sure you're aware that online quotes for mortgage loans are just estimates. Your own individual financial credentials will determine your rate, which may be different from what's advertised. You'll want to get personalized quotes to see what home loan is best for you.

Final Thoughts: How To Get the Best Mortgage Rate

You can improve your chances of getting an affordable loan by taking steps to show you're a responsible borrower. A mortgage professional can also help you explore options. Reach out to Freedom Mortgage today to get prequalified so you can see your potential savings and find a loan that is a good fit for your needs.