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Mortgage application volume is at a three-year high after interest rates dropped. If you’re looking to take advantage of lower rates and apply for a mortgage right now, here’s how you can make your application stronger.
Low Rates Spur Purchase and Refinance Applications
Mortgage application rates jumped 9.2% the week ending September 5 from the previous week, following a dip in mortgage interest rates to the lowest level in nearly a year, according to the Mortgage Bankers Association.
The average rate on a 30-year fixed mortgage fell to 6.29%, the lowest since October 2024, following a mediocre August employment report from the Bureau of Labor Statistics that failed to inspire hope in the labor market.
Prospective homeowners were quick to swoop in on the lower rate, leading to the spike in mortgage and refinancing applications.
“The downward rate movement spurred the strongest week of borrower demand since 2022, with both purchase and refinance applications moving higher,” said Joel Kan, MBA’s vice president and deputy chief economist.
Those currently paying off their mortgage hustled quickly to apply for better terms through refinancing, making the share of refinancing activity increase to 48.8% of total applications from 46.9% the previous week.
How You Can Make Your Application Stand Out
Mortgage rates are expected to drop even lower with an upcoming Federal Reserve meeting on September 17, when the Federal Open Market Committee may decide to slash the federal rate.
If you’ve got your sights set on a property, now is the time to gather all your documents.
Before heading to the bank, take a look at your credit score and seek ways to improve it if it’s suboptimal. Banks use creditworthiness to determine the mortgage rates a borrower is eligible for. Higher credit scores typically qualify borrowers for lower rates.
Credit scores range from 300 to 850, and while a score above 670 is generally considered “good,” lenders reserve the lowest rates for borrowers with scores above 760.
If your credit could use some work, aim to keep revolving debt below 30% of your available credit limit. Pay your bills on time and avoid closing older credit accounts, which can negatively impact your credit history.
As you strategize ways to improve your score, consider using credit monitoring services. These tools help you catch reporting errors and protect against identity theft, which can tank your score.
Some of our favorite services include Experian’s IdentityWorks, which offers identity theft protection and coverage of up to $1 million in identity theft insurance. The two packages offered under IdentityWorks, Premium and Family, all offer FICO Score alerts, monitoring of new credit inquiries, new accounts, large balance changes, credit utilization, and more. Users can take advantage of a seven-day trial before committing to a monthly plan.
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Another way to secure a better mortgage rate is by putting down a larger down payment, which signals to lenders that you’re a lower-risk borrower. That opens opportunities for lower rates and lower monthly payments, according to Synchrony Bank.
While the downside of saving toward a larger down payment is delaying homeownership, it can save you money in the long run if you’re patient. A high-yield savings account (HYSA) can help expedite the process. HYSAs earn higher interest rates than traditional savings accounts, helping you reach your down payment goal faster. The average savings account rate in August was 0.39%, according to the FDIC, while HYSAs can offer returns between 3% and 5%.
Bottom Line
Working on your credit score and offering a large down payment at the bargaining table will help get you closer to a mortgage for your dream home. It may take some time to work on strengthening your application, but patience and perseverance will save you money over time.
