How you can save up to $500 per month on your mortgage payments


There's one easy move that can help you get the best rate on a mortgage: Shop around.

When you apply for a mortgage, lenders will look at your credit report when assessing what kind of interest rate you're offered. In general, the higher your credit score, the better the rate you can score on a mortgage. But whether your score is high or low, rates will vary from lender to lender — sometimes by a lot.

That means shopping around for a mortgage can help you save significant amounts of money, says Greg McBride, chief financial analyst and senior vice president at "Because of the lengthy payback on a mortgage, even a small difference in interest rate can add up to thousands of dollars saved over the life of the loan," he says.

In some more expensive markets like San Francisco, homebuyers with lower credit scores can save more than $500 a month by shopping around for mortgages, according to a recent analysis from Zillow. Even in lower cost markets, you could save about $60 per month by comparing rates. The analysis considered all 30-year fixed-mortgage quote inquiries through Zillow from September 1, 2018, through May 15, 2019.

Here's how to plan and compare rates among different lenders.

Apply to several lenders

Shopping around for quotes can be particularly beneficial for homebuyers with lower credit scores, says McBride, who suggests applying to three different lenders on the same day "so that you can make a true apples-to-apples comparison of rates and fees being offered."

"There are no downsides to shopping around because [scoring models like] FICO and VantageScore will presume you're shopping around for the best rate rather than applying for multiple loans," says credit expert John Ulzheimer, who has worked for FICO and Equifax. Applying to several loans will be treated as a single inquiry on your credit report, so there's no need to fear that shopping around could hurt your score.

There are no downsides to shopping around.
John Ulzheimer
credit expert

Borrowers with lower credit scores have the most to gain by shopping around for mortgage rates, because lenders may consider them a risk and will offer a range of rates. The median APR for credit scores below 640 is 5.48% on a 30-year fixed-mortgage, according to a Trulia analysis. However, you may get a better rate by comparing mortgages from different lenders.

Let's say your credit score is below 640 and you're looking to purchase a home that costs $229,000, which is the median U.S. home value, according to Zillow. If you were to put a 20% down payment on a 30-year fixed mortgage, Zillow's market analysis shows a 1.3% range between the highest and lowest interest rates offered.

That means lenders could offer rates ranging from 4.82% to 6.14% on that 30-year fixed-mortgage. In other words, if you got the lower rate, you'd be paying $151 less per month, or $54,360 over the lifetime of the loan.

Improving your score can set you up for success

You don't need a perfect credit score to get the best rate on a mortgage. If you have a lower credit score and are looking to purchase a home in the next few years, you still have time to improve your score.

  • Make sure to pay your bills on time every month, since the No. 1 reason a credit score drops is late credit payments. The best way to pay your bills on time is to set it and forget it with automatic payments.
  • Take a look at your debt-to-credit ratio because that indicates how much of a risk you are to prospective lenders. You'll want to aim for a low utilization rate — ideally below 30%.
  • And try to pay off your credit card balance in full each month so you can establish a solid payment history.

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