Be Prepared to Negotiate A Mortgage Rate

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Starting the real estate dance means finding the best mortgage rate lead for you to follow. To put your best foot forward, you can try to negotiate the interest rates presented by a lender, and you should.

Whether you will be successful in your negotiations is up to you. You need to know how and what exactly to discuss regarding your mortgage rate in order to be triumphant with your negotiations. Here are some important reminders and tips on to negotiate before you end up on that real estate dance floor without a strongly negotiated mortgage rate partner leading the way.

Be Informed
Generally speaking, well-qualified borrowers have more negotiating power than those who are poorly qualified for a home loan. That’s why the first vital step to negotiating a mortgage rate is to be informed about your current credit and financial situation. To find out the state of your credit score, it is best to check into a credit monitoring service; this will inform you of your score but will not pull an inquiry, which can hurt your credit. If you notice any errors, call the credit company and get them handled. This can push your credit from a good score to a great score, which will aid you in negotiations.

Once you have that knowledge, dive into your bank account and seriously estimate how much money you have as a down payment on a house. After you know your credit score and down payment amount, you are armed with information and a lender can give you an initial ballpark estimate of what your mortgage rate will be.

Finally, find out if you are eligible for any special programs that make home buying less costly, such as loans for first-time homebuyers or veterans. USDA loans also may be available if you live in a rural area. Doing this research is an extremely important first step.

Shop Around
Finding a fair interest rate and good terms for your mortgage is much easier today than it was during the 2008-2009 recession or even a few years ago. The power has now shifted to the consumer. Due to mortgage reform, there are better disclosures and stricter regulations that lenders and banks must now follow.

According to a Freddie Mac study, half of homebuyers stay with the first lender they meet with. However, shopping around can aid you in your negotiations. That same study illustrates that consumers save $3,000 over the life of their mortgage by getting five quotes rather than just one. The study supports the advice that to shop around and get different quotes will be worth your time if you’d like to save a few thousand dollars in the long run.

When you’re shopping, it is also important to recognize the costs and fees associated with a loan. You may not see a fee for the lender, but they are charging points, which are fees. At each institution you contact, request a fee estimate or worksheet to have it laid out in front of you so you have a breakdown of every fee and cost. This will help you continue to be an informed buyer as you shop.

Negotiating Power
Now that you’re informed and ready to shop around to negotiate the best rate, there are a few questions to ask yourself to know if you have negotiating power. Do you have a decent credit score with nominal debt? Can you afford to make a larger down payment? Is your income more than adequate for the amount of money you want to borrow? Are your supporting documents, such as tax returns, free of red flags for underwriters? If you answered yes to these questions, then you are a well-qualified borrower. This means you hold negotiating power, making it easier for you to negotiate the mortgage rate offered by your lender or bank.

The harsh reality of the lending world is, if you are a marginal borrower, meaning lower credit score with a poor debt-to-income ratio, then the lender or bank holds the negotiating power. If you are a marginal borrower, you can still shop different lenders and banks to get different quotes, but once you have a quote, there is not going to be room to negotiate and just being approved is a happy occasion.

What You Can and Can’t Negotiate
There is flexibility with specific items when it comes to negotiating a mortgage rate. Lenders cannot change rates, but when unforeseen events increase your loan closing costs, that is something a lender can cover. For example, a lender can credit closing costs to a borrower when there are delays from a blown rate lock or when rates suddenly fall and it is necessary to be competitive. ■

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