How to Find Mortgage Rates Under 3%

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Point of Interest

Mortgage rates keep dropping as the market feels the effects of COVID-19, as evidenced by the fact that the average rate for 30-year fixed mortgage recently fell below 3% for the first time since 1971.  It may be easier than ever to find mortgage rates under 3%, but there are other factors to consider aside from the record lows.

It’s easy to see that low interest rates can save you thousands. After all, just 1% difference in a mortgage interest rate means huge things over the course of a 30-year loan. But, while low interest rates obviously save you money, actually finding a low interest rate is a different story.

You may have seen recent news that most mortgage loan rates are at an all-time low, but it can be tough to find a mortgage loan with an interest rate under 3%. To do that, it will take some work to find a rate that low — but there are several steps you can take to get started.

How to find rates under 3%

If you want to find the best interest rate, you’ll need to do some shopping around. You probably won’t get the lowest rate possible on your first call to a lender — so be prepared to dig. You should also:

Compare as many lenders as possible.

Maybe you’ve already done some online research to compare possible mortgage lenders. Most lenders will provide you with personalized estimates online or over the phone, but some will require that you prequalify or start an application to see what you’re eligible for.

While it can take some time to shop around for the best rates, it’s a vital part of the mortgage process and helps you clearly understand your options. Comparing major mortgage lenders is a good place to start.

You can also use offers you’ve gotten from other lenders to leverage offers from new lenders. Tell them what you’ve already been quoted and ask for a lower rate. It won’t hurt to try, and in doing so, you may just strike below 3% gold.

Look into government-backed loans.

Government-backed loan options, such as VA or USDA loans, often have interest rates under 3%. You’ll have to qualify based on income, military service or geographic location in most cases.

USDA loans are geared toward low-income homebuyers in rural areas, and these types of loans come with interest rates as low as 1% in some cases.

VA loans provide low rates to veterans and active-duty military, and the interest rate will depend on the lender — though in most cases, the rates on these types of loans are much lower than you’ll get with conventional loans.

FHA loans, which are secured by the Federal Housing Authority, also tend to offer lower rates than most conventional loans, though they may be a bit higher than USDA or VA loans.

Pay for points.

Mortgage points, or discount points, are essentially upfront interest fees that you can pay during closing to reduce your interest rate. Typically, mortgage points amount to 0.25% of the interest rate.

For example, if you were able to find a 3.00% rate, buying a discount point would lower your rate to 2.75%.

It doesn’t always make sense to buy mortgage points to lower your interest rate. In some cases, the amount you pay will amount to more than what you save. However, if you struggle to find mortgage rates below 3%, discount points may help you get there. You’ll have to have the cash upfront to buy the points, though.

Tip: As of July 2020, mortgage rates had already hit record lows seven times over. Keep an eye on the ever fluctuating interest rate trends as you compare lenders.

Raise your credit score and lower your debt-to-income.

The process of raising your credit score is easier said than done, but if you can manage to raise your score before shopping around for mortgage loans, it can drastically impact your mortgage application process. The higher your score, the easier it will be to take advantage of the lowest mortgage rates.

The first step to improving your credit score is to check your score to know exactly where you stand. Borrowers with a credit score of 740 or higher will qualify for the best conventional mortgages rates, though you can still qualify for some of the better rates by simply improving your score — even if you can’t get it quite that high.

Your debt-to-income ratio (DTI) is also taken into account when you apply for a mortgage. You can calculate your DTI by dividing your monthly debts by your gross monthly income. You’ll have an easier time qualifying for the best rates if your DTI is below 36%.

Refinance for a shorter term.

If you already have a mortgage, now may be the time to refinance at a lower rate. If you have a 30-year mortgage loan that you can swap for a 15-year term, you may have an easier time finding a rate below 3%.

However, with a shorter term comes a higher monthly payment because you will be paying your loan off faster than you would have under the old terms. So, before you swap terms on your loan, you should be certain that you can handle higher payments — especially in the face of the current economic uncertainty.

Refinancing may also not be worth it if you don’t have much equity in your home. It’s best to calculate how much a refinance would cost you before you start contacting lenders.

The final word

Mortgage rates are currently down, which makes it more feasible than normal to find an interest rate below 3%, but there are always ways to find low rates — no matter what’s happening in the market. Start by looking into mortgage lenders and comparing rates, and consider buying points to make sure you get the best rate possible. Make sure to also check on your credit score and debt-to-income ratio so you know what mortgage rates to expect.

As rates drop, mortgage applications increase — which cause rates to increase as well — so it’s best to keep your financial situation in mind as you research. Keep an eye on average rate trends so you can snag the lowest mortgage rate possible.