Can you negotiate your mortgage rate?
Yes. Of course. Anything can be negotiated including the closing costs if you know how to do it.
This article details exactly what you need to do to get the best deal on your mortgage loan.
Check Rates and Compare Loan Offers from Multiple Lenders
How to Negotiate Your Mortgage Rate
Your mortgage rate can be negotiated, and most lenders know this, so they move the initial rate they offer you up a few ticks with the anticipation of having to lower it.
To negotiate your mortgage rate, you will have to compare loan offers from multiple lenders. Your interest rate and closing costs can vary widely depending on the lender you work with. Comparing loan offers is the best way to be sure you’re getting the most competitive terms on your loan.
1. Speak to Multiple Lenders
Some people make the mistake of getting a loan with the first lender they speak to. They feel comfortable with them, the loan terms seem pretty good, and the interest rate is competitive. But this is the worst thing you can do. You can almost always get a better deal. Even if you love your loan officer, you can negotiate the terms to get the best deal on your loan possible.
You should get a loan estimate from at least 3-4 lenders. Compare the interest rate, closing costs, and other fees they are charging. Most likely, you will notice there is a pretty wide variance in the loan offers; this is pretty normal. Some lenders will charge a higher interest rate and make the money back on the closing costs charges.
2. Use Loan Estimates to Negotiate a Lower Rate
A loan officer has 3 days from the time you complete your loan application, and they pull credit to give you the loan estimate breaking down the loan fees. The interest rate, closing costs, and other lender fees will be listed on the loan estimate.
You can take the best loan estimate to each lender and have them try to beat the offer. They will most likely come back with a lower rate and closing costs to get the deal done.
If there is a loan officer you feel the most comfortable with being capable of getting your loan closed on time, then you can give them the best loan estimate you got and tell them to beat it to earn your business.
3. Buy Discount Points
Discount points are prepaid interest.
One point is equal to 1% of the loan amount.
Discount points reduce your interest rate on the loan and could be the key to unlocking a great mortgage deal. Work with an experienced loan officer who will see if you can get a better deal by buying discount points.
4. Improve Your Loan Application
The stronger your loan application is, the lower risk you present to the lender and the lower the mortgage rate you will get on your loan. This could be using a larger down payment, improving your credit score, or adding income with a co-signer.
Improve Your Credit Score
Your credit rating is directly tied to the interest rate you will receive on a loan. Even just a half a percent difference in the mortgage rate can save you tens of thousands of dollars over the life of the loan.
Pay off Your Credit Cards
The quickest way to increase your credit score quickly is to pay down the balances on your credit cards. Your credit utilization ratio is the amount of available credit you are using. The lower your card balances, the higher your credit score will be.
Try to pay your balances to less than 20% of your card’s credit limits. Once you do this they should report the updated balances to the credit bureaus within 30 days. At which time the lender can pull your credit score again and get the updated scores. If you are in a hurry ask your lender about doing a rapid rescore to get your updated credit scores more quickly.
Don’t Miss any Payments
Sounds simple but forgetting to make payments is the number one reason people miss payments. However, you need to remind yourself, don’t miss any payments before making a purchase like buying a house. Your payment history accounts for 35% of your credit score, a single late payment can cause your credit score to drop by as much as 50 points.
If you have a tendency to forget to make payments on time you need to sign up for automatic payments. Most creditors offer autopay for free, sign onto your online account and see what options they have for autopay.
Put More Money Down
The more money you put down, the lower the loan-to-value ratio of the mortgage, the lower the risk and the lower the rate.
Talk to your loan officer if you have funds to make a larger down payment to see if it will help you get a better deal.
The Bottom Line
Not only can you negotiate your mortgage rate you can negotiate for better loan terms and lower closing costs.
First, you need to get loan quotes from at least 3-4 different mortgage lenders.
Then contact each lender and have them beat the lowest loan estimate you recieved.
You can also try to improve your loan application by increasing your credit score, making a higher down payment, or by adding a co-borrower.
Lenders know borrowers will want to negotiate the loan terms so they often have room built in so they can lower the rate or closing costs to get the loan closed.
Comparing loan quotes from multiple lenders is how you get lenders to fight for your business.
