Mortgage rates continued to drop last week after hitting a 23-year high in October. Between Dec. 1 and 7, rates for 30-year fixed-rate mortgages fell from an average of 7.05% to 6.95%, according to mortgage finance agency Freddie Mac.
This marks the seventh straight week of decline and the first time in four months that rates dropped below 7%.
Even with still-elevated housing prices and a shortage of new homes, the dip will likely lure house hunters who have been waiting to buy.
With inflation continuing to decelerate and the Federal Reserve expected to lower rates by mid-2024, “we likely will see a gradual thawing of the housing market in the new year,” Freddie Mac chief economist Sam Khater said in a statement.
If you’re thinking of taking advantage of the decline and applying for a mortgage, CNBC Select has some advice to help get you the best rate.
What we’ll cover
Boost your credit score
Many lenders will only consider applicants with a credit score of 620 or higher. If yours is below that threshold, consider spending a few months raising it before you apply for a mortgage.
Even if your score is about 620, it’s worth beefing up your credit score, since that three-digit number heavily influences the rate lenders will offer you: A score of 690 to 739 is considered “Good” and can save you 1% in interest, which can add up to tens of thousands of dollars over the life of your mortgage.
Here are a few ways to drive up your score within a few months.
- Always make payments on time.
- Pay off the statement balance on your credit cards to ensure your debt-to-income ratio remains low.
- Avoid hard credit checks for at least six months before applying for a mortgage.
Enrolling in Experian Boost™ can also improve your credit score: A free feature, it provides information on payments to utilities, streaming services and other monthly bills that aren’t normally part of your credit history to Experian, one of the three main credit reporting agencies.
Experian Boost™
On Experian’s secure site
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Cost
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Average credit score increase
13 points, though results vary
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Credit report affected
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Credit scoring model used
Results will vary. See website for details.
Find out what kind of loan you want
Depending on what kind of loan you choose, you may be able to score a lower rate. There are many types of mortgage loans, and each has benefits and drawbacks.
On average, 15-year fixed mortgages have lower rates than 30-year ones. But, of course, you have less time to pay off your loan.
During the first five to seven years, an adjustable-rate mortgage is typically lower than a fixed-rate loan. After the initial period, there’s always the risk that your monthly payments could increase because of higher interest rates.
There are also mortgages available from the Department of Veterans Affairs, the Department of Agriculture and the Federal Housing Administration. These government-backed loans can have lower credit requirements and down payments, but are only available to select groups.
Compare lenders
Once you figure out what loan you want, it’s time to choose a lender. When deciding where to apply, consider your credit score and what type of loans they offer. One of CNBC’s top picks, Ally Home, has fixed and adjustable rate mortgages with 10- to 20-year terms. It doesn’t charge lender fees and borrowers with a credit score of 620 may be able to put as little as 3% down.
What’s more, pre-approval is possible online within minutes.
Ally Home
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, HomeReady loan and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a HomeReady loan
Another great option, Chase Bank, offers FHA and VA loans, as well as a product created for first-time homebuyers that may allow you to make a down payment of as low as 3%.
Chase also provides fixed- and adjustable-rate loans and offers discounts for existing customers.
Chase Bank
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a DreaMaker℠ loan
If you’re really struggling with bad credit, Rocket Mortgage considers applicants with scores as low as 580. It offers personalized interest rates and loan terms of between 8 and 30 years.
Rocket Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
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Terms
8 – 29 years, including 15-year and 30-year terms
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Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
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Minimum down payment
3.5% if moving forward with an FHA loan
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Bottom line
Mortgage rates are dropping but they’re still historically high. So, if you’re among the many Americans restarting their home-buying journey, begin by boosting your credit score and comparing loan types and lenders.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.