Never Accept Your First Offer: How to Save Thousands By Negotiating With Your Mortgage Lender

When it comes to mortgage lenders, you’ll never get an offer you can’t refuse on the first try.

You’ll need to negotiate — and learning how to haggle for the best mortgage rate can save you thousands of dollars.

Every penny counts these days. The 30-year fixed mortgage rate is almost two percentage points higher since the year began. Rising rates coupled with inflated home prices are putting homebuyers in a financial pinch.

The good news is many lenders are able and willing to negotiate mortgage rates to get your business. Although they probably won’t lower your rate out of the goodness of their heart, they might reduce it if another lender has offered a better deal. “The homebuyer should talk to more than one lender in the homebuying process because they may encounter different fees and may be able to negotiate with one lender versus another,” says Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.

Even a small change in your interest rate on a 30-year mortgage term can make a big difference. In fact, homebuyers who get at least one additional rate quote saved an average of $1,500 over the life of their home loan, according to a Freddie Mac study. Homebuyers who got at least five quotes saved twice that amount.

Unfortunately, almost half of home shoppers only get a single rate quote, according to the study, thereby missing out on savings and limiting their ability to negotiate for better rates.

That’s why arming yourself with negotiation tactics could help you battle today’s inflated interest rates.

How to Negotiate Mortgage Rates

As with any negotiation, you want to be prepared when approaching your lender. One of the most effective steps you can take is to shop around with multiple lenders.

Here’s how to go about your negotiation:

1. Shop Around With at Least Three Lenders

While you can compare mortgage rates from as many lenders as you like, Curtis Wood, founder and CEO of Bee, a mobile mortgage app, recommends getting offers from at least three.

“My best suggestion is really just to get three loan estimates at the beginning,” says Wood.

“Then call the bank and say,  ‘I’ve got a quote that’s lower than yours, can you beat it?’ This is a very easy way to pit the lenders against each other.”

Dr. Lautz also suggests checking your rates with different types of lenders, as some may be a better fit for some borrowers over others.

“Try a variety of different types of lenders,” she suggested. “Perhaps you want to try the bank that you have an account with, as well as your local credit union and perhaps a bigger lender, as well.” With less overhead, fully online mortgage lenders can sometimes offer better prices than brick-and-mortar companies.

Some online marketplaces, such as the Costco mortgage program, also help you compare rate quotes from multiple lenders at once based on a soft credit pull. While this comparison shopping can be helpful, keep in mind that your rate might be different after a lender runs a hard credit check.

2. Improve Your Credit

The terms of your home loan offer depend largely on your credit history and credit score. Borrowers with stronger credit will qualify for the best rates. That’s why it’s important to fix or improve your credit as much as possible before taking out a mortgage.

“Your credit score influences your rate,” says Lautz. “As you go into that home-buying process, make sure that your credit is as high as you can get it and make sure that you remove any blemishes from your credit report.”

Making on-time payments and paying down debts can improve your credit. Paying down loan balances can also lower your debt-to-income ratio (DTI), which can make you a more appealing candidate to a lender.

As you’re shopping for a mortgage, furthermore, keep your applications to a 45-day window to avoid hurting your credit. According to the Consumer Financial Protection Bureau (CFPB), your mortgage applications will be treated as a single inquiry as long as they don’t spill over that time period.

3. Negotiate Lender Fees

Your interest rate isn’t the only part of your mortgage that has some wiggle room. Lenders might also be able to lower or eliminate lender fees, such as origination and application fees.

“The lender can do whatever they want with the lender fee,” says Wood. “It’s typically around $1,000, but if they want to be competitive, they can just totally waive it. That’s the easiest fee to get them to take off.”

As with negotiating your mortgage rates, Wood recommends leveraging other offers to negotiate lender fees.

“Tell the lender you have another quote from another lender with no lender fee,” he says. “Say, I’ve got this lender, and they’re offering me a lower rate and no lender fee. Can you match it? Can you beat it? And if they say yes, tell them to send it to you in writing.”

4. Increase Your Down Payment

Putting more money into a down payment can help lower your mortgage rate. The more you put down, the lower the loan-to-value ratio (LTV). Lenders use the LTV metric to determine risk, and the lower your LTV the better. A lower LTV can translate into a lower mortgage rate. This strategy could mean waiting longer to buy a house so you save up for a higher down payment.

What to Know About Closing Costs

Along with estimating interest charges on your home loan, don’t forget about closing costs. Closing costs are the upfront expenses you’ll need to pay when you finalize your loan and buy your home.

Closing costs typically range anywhere from 2% to 7% of your home’s purchase price, according to Realtor.com. If you’re buying a home for $200,000, expect to pay somewhere between $4,000 and $14,000 in closing costs.

Some common closing costs include an appraisal fee, title search fee, title insurance fee, and inspection fee. Depending on your state, you might also need to pay for an attorney to oversee the closing process. Plus, you’ll likely need to pay a few months’ worth of property taxes and homeowners insurance into an escrow account upfront.

When you apply for a mortgage, your lender will give you a Loan Estimate (LE): A document outlining estimated closing costs. While your lender might recommend certain appraisal or title search services or an attorney, you can typically shop around and hire someone else if you find someone less expensive.

PRO TIP

Checking your mortgage offers with at least three lenders can help you negotiate for better rates. As you’re comparing options, make sure to consider lender fees and closing costs, too.

Shopping Around for the Best Mortgage Rates

As you’re comparing home loan offers, keep in mind that the lowest rate doesn’t always mean the lowest costs. While a low rate may seem attractive, additional fees and closing costs could negate your savings.

Consider the following example of a 30-year fixed-rate loan of $280,000:

INTEREST RATE CLOSING COSTS TOTAL LOAN COST OVER 3 YEARS TOTAL LOAN COST OVER 5 YEARS TOTAL LOAN COST OVER 10 YEARS TOTAL LOAN COST OVER 20 YEARS TOTAL LOAN COST OVER 30 YEARS
Loan A 4.9% $9,000 $62,497 $98,161 $187,323 $365,647 $543,970
Loan B 5.2% $1,000 $56,350 $93,250 $185,501 $370,002 $554,503

As you can see in the above table, Loan A has a lower interest rate than Loan B. But because its closing costs are significantly higher, Loan A costs more in the first 10 years of your home loan. If you expect to pay off your home loan in a decade or less, opting for Loan B with the higher interest rate and lower closing costs might be more economical.

If, on the other hand, you expect to be paying off your loan over 20 or 30 years, Loan A becomes the more affordable option over the long run. That said, you’d need to be able to provide $9,000 in closing costs upfront, which may or may not work with your budget.

When comparing loan costs, don’t automatically opt for the loan with the lower interest rate. Consider your total costs, as well as the amount of time you expect to spend paying off your mortgage. Using a mortgage calculator to estimate your long-term costs can help.

You can compare your lender offers using this mortgage calculator tool. Enter in all the loan details and see a side-by-side comparison.

Home Loan Comparison Calculator

Compare your payment options side-by-side to see which is right for you and your financial situation.

Find the mortgage that’s best for you by comparing the cost of multiple loans over time.

Add Loan 1

  
  
  
  
  

Monthly Payment

$1,264.81

Other Factors to Consider When Locking in a Mortgage Rate

The home-buying process has a lot of moving parts. As you’re shopping for your best mortgage offer, here are some additional factors to keep in mind.

Rate Lock Options

Once you’ve found a good rate on a mortgage, ask the lender to lock it in. As rates frequently fluctuate, locking in your rate will protect you from rate hikes for a period of time.

“The customary rate lock is 30 days,” says Wood. “During this time, communicate well with your lender. If they ask for a document, get it back to them in less than 24 hours.”

If you delay the process, you might have to pay to extend your rate lock. If, on the other hand, there are any delays that are the fault of the lender, the lender should offer a lock extension with no fee, says Wood.

Discount Points

Some lenders will also let you purchase discount points to reduce your interest rate. One discount point typically equals 1% of your loan amount to reduce an interest rate by 0.25%. So if you want to drop your rate from 5% to 4.75% on a $200,000 loan, for example, you could pay an extra $2,000 at closing.

“Basically, you prepay interest at a discount,” says Wood. “You’re going to pay more upfront at closing, but over the life of the loan, you will pay less interest. It’s really a personal budget decision.”

The savings you could get from purchasing discount points can also vary depending on how long you’ll hold the mortgage. If you’ll pay it off fairly quickly, the discount points may not lead to savings. But if you’ll be paying off your home loan over 30 years, lowering your rate by buying points could be worth it in the long run.

Negotiating Fees

As mentioned, you can also try negotiating fees with your lender, particularly loan origination or application fees. A lender doesn’t have control over third-party provider fees, such as appraisers and attorneys, but it may recommend providers it has a relationship with.

You can shop around to find better prices, though. According to the CFPB, homebuyers who shop around for closing services could save $500 on title services alone.

At the same time, you need to work within your closing timeline. If shopping around would make you lose your locked-in rate or delay the home sale, it may make sense to go with your lender’s recommendations.

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