How to Secure the Best Interest Rate as a First-Time Buyer

9 October 2025

Buying your first home is an exciting milestone, but let’s be honest—it can also feel overwhelming, especially when it comes to locking in the best mortgage interest rate. With so many factors at play, it's easy to wonder, Am I getting the best deal possible?

The good news? You have more control over your mortgage rate than you think. Lenders assess various factors before deciding the interest rate they offer you. The better you prepare, the lower your rate will likely be.

In this guide, we’ll break down everything you need to know about securing the best interest rate as a first-time homebuyer. From improving your credit score to choosing the right loan type, let’s dive in!

1. Understand What Determines Mortgage Interest Rates

Before we jump into the strategies, it’s important to understand how lenders determine interest rates. Here are the key factors that influence the rate you’ll receive:

a) Credit Score

Your credit score is one of the biggest determining factors in the mortgage rate you qualify for. Lenders use it to assess your reliability as a borrower. The higher your credit score, the lower the interest rate you’ll likely receive.

Generally speaking:
- Excellent (740+): Qualifies for the lowest rates
- Good (700-739): Competitive rates, but slightly higher
- Fair (620-699): Rates are higher, and loan approval may be tougher
- Poor (Below 620): Limited loan options with much higher rates

b) Debt-to-Income Ratio (DTI)

Your DTI ratio compares your monthly debt payments to your monthly income. Lenders prefer borrowers with a lower DTI because it signals a strong ability to repay the loan.

To calculate your DTI ratio:
(Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Most lenders prefer a DTI ratio under 43%, though lower is always better.

c) Loan Term

The length of your mortgage also impacts your rate.
- 15-year loans tend to have lower interest rates but higher monthly payments.
- 30-year loans have higher interest rates, but the payments are more manageable.

Choosing the right term depends on your financial situation and long-term goals.

d) Down Payment Size

The more money you put down, the lower your interest rate. A higher down payment reduces the lender’s risk, which often results in better loan terms.

Most lenders offer the best rates to borrowers who put down at least 20%, but some loan programs allow you to put less down while still securing a competitive rate.

2. Improve Your Credit Score Before Applying

Your credit score plays a major role in securing a lower interest rate. If your score isn’t where you’d like it to be, take time to improve it before you start house hunting. Here’s how:

a) Pay Off Existing Debt

Lenders look at how much debt you already have. Paying down credit cards and loans can boost your credit score and lower your DTI ratio.

b) Make Payments on Time

Nothing drags down your score faster than late payments. Set up automatic payments or reminders to ensure you never miss a due date.

c) Avoid Opening New Credit Accounts

Each time you apply for a new credit card or loan, it triggers a hard inquiry, which can slightly lower your score. Avoid unnecessary applications while preparing for a mortgage.

d) Check Your Credit Report for Errors

Mistakes on your credit report could be dragging your score down. Request a free copy from AnnualCreditReport.com and dispute any inaccuracies.

3. Save for a Bigger Down Payment

While some loans let you get in with as little as 3% down, saving for a larger down payment can dramatically improve your mortgage rate.

- A 20% down payment lets you avoid private mortgage insurance (PMI) and secures the best rates.
- Even increasing your down payment from 5% to 10% can make a difference in the interest rate you receive.

Not ready to put down 20%? No worries—different programs can help, which we’ll cover next.

4. Choose the Right Loan Program

Not all mortgage loans are created equal! First-time buyers have access to several loan options, and each comes with different interest rates.

a) Conventional Loans

- Require a 620+ credit score
- Typically offer better rates with higher down payments
- Require PMI if you put down less than 20%

b) FHA Loans

- Great for buyers with lower credit scores (as low as 580)
- Require a 3.5% down payment
- Interest rates may be slightly higher than conventional loans

c) VA Loans (For Veterans & Active Military)

- No down payment required
- No PMI required
- Competitive interest rates

d) USDA Loans (For Rural Homebuyers)

- No down payment required
- Lower interest rates
- Must meet location and income requirements

Choosing the right loan type depends on your credit, budget, and long-term plans.

5. Shop Around for the Best Mortgage Rates

Would you buy the first car you see without checking other options? Probably not—so don’t settle for the first mortgage offer you receive either!

a) Compare Lenders

Interest rates can vary significantly between lenders. Get quotes from at least 3-5 lenders to compare terms.

b) Get Pre-Approved

A mortgage pre-approval gives you a clearer picture of what interest rate you qualify for. This also strengthens your offer when buying a home.

c) Work with a Mortgage Broker

If you’re unsure where to start, a mortgage broker can compare different lenders for you and help you find the best deal.

6. Consider Paying Points to Lower Your Interest Rate

Mortgage points, also called discount points, allow you to “buy down” your interest rate. Essentially, you pay more upfront to secure a lower rate over the life of the loan.

- 1 point = 1% of your loan amount
- Reduces interest rate by about 0.25% per point
- Best for buyers who plan to stay in their home long-term

If you have extra cash and want to lower your monthly payment, this could be a smart strategy.

7. Lock in Your Rate at the Right Time

Mortgage rates fluctuate daily based on economic conditions. If you find a great rate, lock it in with your lender to prevent unexpected rate hikes before closing.

Some lenders offer free rate locks for a certain period, while others may charge a small fee. Be sure to ask about this option!

Final Thoughts

Securing the best interest rate as a first-time homebuyer might seem tricky, but with the right preparation, you can set yourself up for success.

By improving your credit score, saving for a bigger down payment, choosing the right loan, and shopping around for the best rates, you’ll be in a much stronger position.

Remember: Even a small difference in interest rates can save you thousands over the life of your loan. Make smart, informed choices, and your future self will thank you!