For many Americans, buying a home may be the biggest financial investment they make. Most home buyers need to take out a mortgage in order to purchase a home. The interest rate on the mortgage will determine the amount of monthly payments. Even a slight difference in rates can have a significant effect on the cost of the loan. Since the mortgage rate has such a large impact on how much money you’ll be spending over the life of the loan, its wise for you to shop around to find the lowest rate available. Here are some steps you can take to find a mortgage with the lowest rate.

Find out your credit score
Your credit score is one of the most important factors lenders will use to determine your rate. Having a higher credit score increases the likelihood that you’ll get better mortgage rates. Potential homeowners should get a copy of their credit scores at least six months before they plan on shopping for a mortgage, this way there is plenty of time to address any errors or problems on your credit report. Don’t worry, inquiring about your own credit score should not hurt your credit score.

When you begin shopping around for a mortgage, each lender you go to will want to look at your credit report. Each time someone makes a credit inquiry on you it can lower your credit score. To minimize any dings in your credit score, you can shop around for a loan for a short period of time. Credit companies understand that shopping for a home loan results in a single loan as opposed to multiple lines of credit. The FICO credit score model does not penalize you if you have multiple credit reports pulled within a 45 day time period.

Consider Mortgage Types
Before shopping for your mortgage, find out how much money you want to borrower, the length of the mortgage you need and what type of loan you will be looking for. There are three basic types of mortgages: fixed-rate, adjustable-rate and FHA home loans.

Consider Additional Costs

The lowest rate you qualify for may not always be the best choice for your mortgage, as other fees can make up a significant portion of the loan amount. For the most part, mortgages with lower interest rates will have higher fees, so it’s important to consider underwriting fees, broker fees, and closing costs. Some fees will be paid when you apply for the loan, and others will be due at closing. Ask your lender which fees you will be charged, and what they are for.

Mortgage points are fees paid by the borrower, which usually affects your interest rate. The more points you buy, the lower your interest rate will be. One point will cost 1% of the total loan amount and will reduce your interest rate by a quarter of a percent. If you are planning on staying in the home for a long time, 10 or more years, buying points to keep interest rates low may be a good idea.

Negotiate
After you have received an offer from a lender, you can still negotiate for better terms. Find out all the costs that are associated with the loan. This includes fees, interest rate and mortgage points. Find out if your lender will waive or reduce any of the fees. You can also ask the lender will match better terms that you have found from other lenders. When you are satisfied, ask for a written statement that includes the rate and terms you agreed upon, and the number of points that are to be paid if applicable.

A mortgage is a long-term obligation, and the rate you pay will have a significant effect on the cost of your home loan. Even just .5% percent difference in interest rates can save you thousands or even tens of thousands of dollars over the life of the mortgage, so shopping around for the best rates and lowest costs will definitely be worth it.