Gearing up to buy a home? It’s time to start paying attention to real estate headlines and interest rate news. Stay tuned into economic trends to help you prepare to shop for mortgage rates because yes, you can negotiate your interest rate.
How To Negotiate Mortgage Rates
Never take the first offer as rates vary by lender. Obtaining multiple loan and rate offers puts you in the best seat for negotiation. Once you have all your documents gathered, apply for a home loan through several different lenders to see the difference in offers they generate for you.
Posted Rates & Special Rates
A lender’s posted rates are their publicly advertised rates. While a posted rate serves as a good benchmark, your actual rate may be different. That’s because lenders base rates on each borrower’s credit score and financial security.
If you have strong financial standing, you could qualify for special rates that are lower than the posted rate. This is what’s known as your actual rate. Borrowers who don’t know that they can shop around might simply accept the first posted rate they see.
Simply asking your lender- ‘is this the best interest rate you can get me?’ opens the conversation and possibility of a decreased rate. Even a .15 decrease in interest rate saves you money across a 30 year loan.Â
Rate Matching
Ask your prospective lenders if they offer “rate matches” if you can prove that you’ve received a better offer.
This signals that the lender is competitive and will work against better loan offers to earn your loan. Getting a “yes” on a rate match can help you combine the best terms with the best rate.
Be a good candidate for negotiations
Mortgage lenders are in the business of reducing their exposure to risk. That’s why they put such a heavy focus on your credit score, debt-to-income ratio (DTI), employment history, and repayment history. For them, your creditworthiness is really just your likelihood of repaying a loan in full.
Make sure your credit score is where it should be to qualify for the best interest rates. Borrowers with credit scores of 720 and above generally get offered the best rates. Review your credit score to look for any errors that could be incorrectly hobbling your score.
Finally, bring your flexibility to the negotiating table. Did you know that 15-year loans have lower rates compared to 30-year loans? If you can make bigger payments work for a shorter repayment term, you could potentially save tens of thousands of dollars over the life of the loan.
Work With A Mortgage Broker
Nobody is born an expert mortgage negotiator. For many people, this is something they will only need to do once in their life. Mortgage brokers use your financial information to find the best potential loan on your behalf. They even act as a loan officer through closing. Most brokers charge fees at closing with no upfront costs.
How To Shop Around
First, decide if you’d like to apply for a conventional loan vs. FHA loan to ensure you’re doing an apples-to-apples comparison between lenders. You should also settle on a fixed-rate mortgage vs. an adjustable-rate mortgage (ARM) before you start shopping. Here’s what your plan for how to negotiate mortgage rates should include:
- Compare big banks vs small banks: While national lenders may be able to offer you more diverse loan options, local banks typically offer a personal touch and the option to drop payments off in person. Don’t forget to look at credit unions and banks!
- Get quotes online: You can get the ball rolling sooner by submitting for quotes online before following up over the phone.
- Pick your lenders: Don’t stop with one lender just because they advertise a decent rate. Request quotes or information from three to five lenders.
- Know what to look at when comparing loan offers: Don’t just compare mortgage rates. Look at all of the terms to determine which loan package is the overall cheapest. This includes comparing loan APR, application fees, processing and origination fees, repayment schedules, and anticipated closing costs.
- Ask for a fee summary: Make sure you’re asking each lender for an itemized fee summary.
- Do all your requests in a 45-day period: Most people already know that mortgage applications harm your credit slightly. Not everyone knows that multiple credit inquiries count as one inquiry as long as they’re all done within a 45-day window. Remember that one major difference between pre-qualification vs pre-approval is that a credit pull isn’t done for a pre-qualification.
Read The Fine Print On Offers
Don’t gloss over anything. It’s easy to think of your mortgage rate as the be-all and end-all of the buying process. In reality, the lowest rate isn’t always the best offer. Evaluate fees, closing costs, origination fees, loan terms, and potential mortgage points to understand the true cost of each loan offer.
