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By Daniel Bortz
June 3, 2020
Kiersten Essenpreis for Money

It’s no secret mortgages are cheap right now. For some borrowers they’re hitting levels many experts might have thought impossible just a few months ago. Welcome to the world of the sub-3% mortgage.

The 30-year fixed-rate average sank last week to 3.15% with an average 0.8 percentage points paid, according to Freddie Mac. That’s the lowest level recorded since the mortgage giant began tracking mortgage rates in 1971. But 3.15% is just the average rate—some buyers and refinancers are qualifying for rates below 3%, something even mortgage pros are seeing for the first time.

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“When you look at what happened following the 2008 financial crisis, we saw rates on 30-year-fixed loans fall into the low 3’s, but they never went below 3%,” says Cameron Beane, head of pricing and secondary markets at TD Bank. Now, says Beane, “We’re finally there.”

Borrowers can thank the Federal Reserve for today’s unprecedented mortgage rates, says Keith Gumbinger, vice president at mortgage site HSH.com. With the economy in a tailspin during COVID-19, “the Fed rightfully worried about the effects of the economic shutdown, so it took unprecedented steps to lower mortgage rates to emergency levels,” Gumbinger says.

Lenders Offer Sub 3% Mortgages

While not all borrowers qualify for the lowest rates, a number of lenders have said they are writing loans below 3%.

Earlier this month Pontiac, Mich.-based United Wholesale Mortgage—one of the nation’s largest residential lenders—rolled out a new loan program offering 30-year fixed rates ranging from 2.5% to 3.0% on purchase mortgages and refinances. Chase Bank quickly followed suit by offering mortgage rates of as low as 2.875% on 30-year fixed loans.

Credit unions have also jumped into the sub-3% mortgage market. “Roughly 12% of our loan applicants are qualifying for mortgage rates that are below 3%,” says Mitchell Jones, vice president of mortgage lending at Virginia Credit Union.

If you are shopping for a mortgage, here are seven tried-and-true tactics that will help you nab a mortgage rate below 3%.

Whip your credit into tip-top shape

Generally, borrowers need a FICO score of 740 or higher to qualify for the lowest mortgage rates on a conventional loan, Gumbinger says. Which is why it’s important to find out what your credit score is—using a website like MyFico.com, Gumbinger suggests—and to review your credit reports for errors. (Getting errors on your credit report fixed can give you the most immediate score boost.) You’re entitled to a free copy of your report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—at AnnualCreditReport.com.

Beef up your down payment

Down payments for conventional home loans range between 5% and 20% of the loan amount. But because borrowers with higher down payments are less likely to default on their mortgage, upping your deposit to 25% or 30% may enable you to lock in a mortgage rate of less than 3%, says Jordan Dobbs, a loan officer at Sandy Spring Bank in Rockville, MD.

Another benefit of plunking down at least 20% is you won’t have to pay private mortgage insurance, or PMI, an extra fee designed to compensate lenders in case you default.

Shorten your mortgage term

According to Freddie Mac, in the week ending May 28 the average rate for a 15-year fixed-rate mortgage was 2.62% with 0.7 points paid. The catch, though, is you need to be prepared to shoulder the higher monthly mortgage payments than you’d pay for a 30-year fixed-rate mortgage. And in today’s economy, where nearly 41 million people have filed for unemployment since the coronavirus was declared a pandemic, you should be extra confident that you have a stable job before taking out a 15-year mortgage.

Pony up more mortgage points

Paying extra points can help drag down your mortgage rate. Points are fees paid to a mortgage in exchange for a lower mortgage rate. One point is equivalent to 1% of the loan amount.

“If you want to get below 3% for a 30-year fixed mortgage, you’d need to pay about 1.5 points right now,” Gumbinger says. On a $300,000 mortgage, that would mean forking over $4,500 at closing. “If you pay no points, your rate would be about 3.4%,” Gumbinger says.

Get a government-backed mortgage

Another approach: See if you qualify for a Federal Housing Administration (FHA) loan or a Veteran Affairs (VA) loan. “We’re issuing a handful of government mortgages with rates below 3%, and that’s because government rates are always going to be a little more aggressive,” says Kevin Schatz, a loan officer at Caliber Home Loans in Santa Ana, Calif.

Find the best deal in town

Shopping around for a mortgage is an often-overlooked way to save hundreds of dollars a year on the cost of owning a home, since “every lender’s pricing structure is going to be a little different,” Jones says.

Not sure where to start? Check out Money’s list of the Best Mortgage Lenders of 2020.

Don’t dawdle

Although some mortgage experts predict that rates will go even lower, no one knows with 100% certainty where rates are heading. What we do know, though, is “we are seeing a great amount of volatility,” says Pete Boomer, a mortgage executive at PNC Bank. “The bottom line is this is a great time to buy as consumers are seeing the best rates in a generation.”

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Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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