8 strategies for negotiating better mortgage rates


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Negotiating mortgage rates is one way to save money when buying a home. Here are eight tips on how to negotiate with your lenders. (iStock)

A low mortgage rate can save you thousands of dollars in 30 years (the most common mortgage repayment period). Fortunately, there is a lot you can do to make sure you get the best rates available.

Some money-saving techniques are easy, like comparison shopping for lenders that offer a good deal. Others, negotiating with your chosen lender for a better rate can be a bit more challenging.

If bargaining isn’t your bag, here’s some guidance on how to negotiate mortgage rates with lenders. And if you’re ready for a comparison store, Credible makes it easy Compare rates By multiple lenders.

Why you should negotiate mortgage rates

Negotiation is a great tool to help you save money on your mortgage rate. Different lenders can offer you different interest rates and fee structures, which is why it is important to get multiple quotes before deciding where to apply for a loan. Additionally, some fees are negotiable and reducing or waiving them can reduce your monthly expenses even more.

You are a First time home buyer Or an experienced lender, negotiating mortgage rates may require some planning. These eight tips can give you some leverage when navigating the negotiation process.

1. Decide what type of mortgage you want

Generally, you can choose Five types of mortgages. Each type is slightly different, so not every option on the market is right for you. Knowing what type of mortgage you want can help you avoid paying off more debt than you need.

Here are five common types of mortgages:

  • Conventional Mortgages – Conventional loans usually offer some of the best interest rates on the market. They generally fit well with creditors with good credit, strong financial profiles and stable employment histories.
  • Government-backed loans – Qualifying for a government-backed loan is usually easier than qualifying for a traditional mortgage. The government agency that supports the loan agrees to protect the lender from loss if the borrower defaults. In exchange, lenders are willing to approve a wide range of lenders. Government-backed loans Includes FHA, VA and USDA mortgages.
  • Fixed rate mortgages – As the name suggests, fixed-rate mortgages maintain the same interest rate for the entire duration of the loan, which benefits you from predictable monthly payments.
  • Adjustable rate mortgages – On the contrary, Adjustable rate mortgages It changes after the initial period, adjusts to current market rates and your loan agreement. These variable-rate mortgages are generally attractive to borrowers because they offer lower introductory interest rates. But your interest rates and expenses can increase significantly over time.
  • Jumbo Loans – Jumbo loans are larger than the current debt limit. In 2021, the threshold for most areas was $ 548,250 and for some high-cost areas increased to $ 822,375.

2. Know what you can qualify for

Your overall financial situation and yours Credit score The two most important factors in determining the interest rate you will receive when you apply for a loan. Generally, lenders who are strong in both these areas will be awarded Best mortgage rates, And have an easy time qualifying for a loan.

If you are not sure what you can qualify for, it is worth taking the time to find out. Getting pre-approved through a platform like Credible can help you understand how much you can qualify for a mortgage.

3. Improve your credit utilization and DTI ratios

Lenders will consider your debt-to-income ratio or DTI and credit score when making lending decisions. Improving both can work in your favor before you apply for a mortgage.

The DTI ratio is a measure of how much debt your total monthly income is going to pay off. To Calculate your DTI ratio, Add up your monthly loan payments and divide by your total monthly income. Lenders usually look at your DTI ratio as low as possible. You can reduce it by paying off your debts or trying to pay them off in full. You can improve your DTI ratio by increasing your total income by starting a side hustle or getting a second job.

On the other hand, your credit score indicates the possibility of repaying your debts to lenders. You can improve your score by making payments on time, paying more than the minimum payment amount possible, and keeping your credit usage low.

4. Compare rates from multiple lenders

Once your finances are as good as possible, the next step is Compare rates from multiple lenders. Comparison shopping can help you save huge sums. Getting just one extra rate quote when saving on mortgage can save $ 1,500, according to a 2018 study by Freddie Mac, one of the largest buyers of residential mortgages in the country. Getting five quotes could potentially save $ 3,000.

You can visit various lenders’ websites and request a quote from each one, or you can use a resource like Credible to help you collect multiple quotes in one place. Whichever method you choose, be sure to provide the same information to each lender. That way, once you have the quotes on hand, you’ll be able to make apples-to-apples comparisons between each offer.

You can do Compare rates from multiple mortgage lenders With credibility.

5. Consider total debt costs

While the interest rate you are offering is important, it is not the only thing to consider when trying to save money on your mortgage. You should also consider total loan costs, including any Charges for closing your home loan. When you close your new home you will pay most of those fees upfront, others can be rolled into your loan amount, which can increase your monthly payment and increase the amount you pay overall.

That said, some of these fees, especially any administrative fees imposed by lenders, are negotiable. For example, the lender may be able to waive its application fee for you or reduce its loan origination fee. But other charges are not up for debate. An appraisal fee, for example, is often set by the appraisal company itself and often not negotiated by the lender.

6. Consider discount points

Discount points The fees you pay to the lender at the time of closing in exchange for a lower mortgage rate. Reducing your interest rate by one point will usually cost you a fee equal to 1% of your loan amount.

But it is worth noting that buying discount points comes with the advantages and disadvantages you want to consider.

Discount points pros

  • Low Interest Rate – Setting aside a credit score and buying points is one way to ensure that you are paid the best interest rate. That decision can save a lot of money on interest expenses over the life of the loan.
  • Low monthly payment – Your interest rate will help you determine your monthly payment. The lower your rate, the lower your monthly payment.
  • Tax deductible – If you deduct on your tax return and meet all the other requirements of taking a mortgage interest deduction, you can write off the money you spend at discount points.

Cons of discount points

  • Large closing costs – Buying discount points means you must be prepared to pay a significant amount upfront. If you have no money or you are taking it from another source, such as your down payment, it may not be worth it.
  • More time to break – If you put too much money into your loan upfront, this means you need to plan to stay home longer to really break even those costs and really see the savings benefit from your low interest rate.
  • Not always worth the cost – If interest rates are low when you’re ready to buy a home, it’s not worth spending the money on points because financing is already affordable.

7. Request rate adjustment

In the mortgage industry, requesting a rate adjustment involves asking one lender to set the interest rate offered by another lender. This mode does not always work. But if you live in an area where mortgage lenders have to compete for business, this can be a valuable strategy at your disposal.

Asking for a rate adjustment is easy if you have a low-cost proof given to you. When you go to other lenders to ask for a match, be sure to bring your quotes with you. That way, the lender will be able to verify that the competition is offering you the best rates and may be more inclined to make a difference.

8. Make a large down payment

In the olden days, Reducing 20% Gold was the benchmark when taking out a mortgage. These days, many lenders are only able to get a mortgage with a down payment of 3% to 5%. Still, if you can afford it, Making a big down payment Reducing your total loan balance can help you secure a lower monthly payment and this will make negotiating with your lender easier.

Generally, lenders want to lend to borrowers they believe are more likely to repay their loans. If you deduct 20% – or more – you will have substantial instant equity in your new home. And lenders perceive you as less of a default risk.

Makes reliability easier to compare rates with multiple lenders and Get pre-approved in minutes.

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