Everything is negotiable, and that is certainly true in the real estate industry. A buyer may negotiate with a seller on the price of a home. Or, a buyer may try to get some concessions on paying for closing costs.
But what about mortgage rates? Do you have any bargaining power with a lender? The answer might surprise you. Yes, it is possible to have some control over your mortgage interest rate.
Here’s how.
But what about mortgage rates? Do you have any bargaining power with a lender? The answer might surprise you. Yes, it is possible to have some control over your mortgage interest rate.
Here’s how.
Make Sure Your Finances are Attractive to a Lender
Unless your finances are in tip-top condition, we don’t recommend you enter the real estate market. You’ll just end up paying more in interest on your home.
For a lender, an attractive buyer is one who has a high credit score, 740 or greater, with a low debt-to-income ratio, usually less than 36%. With excellent credit and low debt, you have more bargaining power.
Pay off credit cards. Build up your savings so that you have a larger down payment. All of this looks good to a lender and earns you a lower mortgage interest rate.
For a lender, an attractive buyer is one who has a high credit score, 740 or greater, with a low debt-to-income ratio, usually less than 36%. With excellent credit and low debt, you have more bargaining power.
Pay off credit cards. Build up your savings so that you have a larger down payment. All of this looks good to a lender and earns you a lower mortgage interest rate.
Shop Around!
According to Fannie Mae, in 2022, one-third of home buyers did not shop around for the best mortgage rate. Worse, that’s a consistent trend. Fannie Mae’s National Housing Survey from the previous eight years showed one-third of buyers getting only one mortgage quote.
Obtaining quotes from multiple lenders is wise. With the typical mortgage terms lasting 30 years, shopping around is also a cost savings. Shop and compare with at least 3-5 lenders, especially if you’re a “preferred” buyer. Lenders will compete for your business!
Buy Discount Points
Buying discounts points can permanently lower your interest rate. “You can lock in a more affordable rate rather than putting more cash on a down payment,” said Taylor Marr, deputy chief economist at Redfin.
Essentially, one point equals 1% of the loan amount and typically reduces your mortgage rate by .25%. If you buy a house for $300,000 on a 30-year fixed mortgage, and your interest rate is 7%, paying two points would cost you $6,000. That would lower your rate to .50%
That means your monthly mortgage payment would decrease by $100, saving you over the life of the loan $36,521. Subtracting the $6,000 you paid upfront, the difference would be around $30,000 in savings.
If you can afford to do it, it can be greatly beneficial.
Essentially, one point equals 1% of the loan amount and typically reduces your mortgage rate by .25%. If you buy a house for $300,000 on a 30-year fixed mortgage, and your interest rate is 7%, paying two points would cost you $6,000. That would lower your rate to .50%
That means your monthly mortgage payment would decrease by $100, saving you over the life of the loan $36,521. Subtracting the $6,000 you paid upfront, the difference would be around $30,000 in savings.
If you can afford to do it, it can be greatly beneficial.
A Shorter Loan Term
Choosing a 15-year term over a 30-year term will increase your monthly payment, but you’ll get a better interest rate on the loan.
Negotiate Lender Fees
Fees like underwriting, origination, and processing charges are all negotiable. Compare lender fees! This can allow you to negotiate down especially if you have good credit. Be sure to negotiate firmly.
If one lender offers you a lower rate than another lender, use it as a bargaining chip to get a better rate. If they want your business, they will offer some flexibility in the fees charged
If one lender offers you a lower rate than another lender, use it as a bargaining chip to get a better rate. If they want your business, they will offer some flexibility in the fees charged
Seller Rate Buydown
It may sound counterintuitive, but sellers can and do sometimes pitch in to reduce a buyer’s interest rate. It’s actually becoming more common, especially in high rate markets.
The seller agrees to what is called a concession, meaning a portion of their proceeds goes to the buyer’s lender to lower the mortgage rate. This rate reduction can apply to the entire length of the loan, or temporary, resulting in a mortgage rate reduction for a few years.
Ask. You won’t know until you try.
The seller agrees to what is called a concession, meaning a portion of their proceeds goes to the buyer’s lender to lower the mortgage rate. This rate reduction can apply to the entire length of the loan, or temporary, resulting in a mortgage rate reduction for a few years.
Ask. You won’t know until you try.
Leverage Your Banking Relationship
If you have significant investments and deposits with your bank, leverage that relationship. Chances are they don’t want to lose your business and will be willing to at least match the rate offered by a competitor.
Time of Closing
Lastly, some lenders offer slightly better mortgage rates if you close towards the end of the month. That’s because your interest rate is partly determined by when your loan is scheduled to close.
This has to do with your lender’s compensation practice from its loan services. By moving your closing date back by one to two weeks, it could allow for your lender to get a better rate from their lending institution or investor.
This has to do with your lender’s compensation practice from its loan services. By moving your closing date back by one to two weeks, it could allow for your lender to get a better rate from their lending institution or investor.
Conclusion
There’s so much to consider when buying a home. Make sure you are as prepared as possible. At the top of your list should be well-ordered finances. This can put you in a much more favorable position when buying a home.
When you’re ready to close on your new home, turn to Lilly Title & Settlement. We’re a woman-owned company in Staunton, VA, and we’re obsessed with legal details. We’ll make sure your closing is as easy and stress-free as possible!
When you’re ready to close on your new home, turn to Lilly Title & Settlement. We’re a woman-owned company in Staunton, VA, and we’re obsessed with legal details. We’ll make sure your closing is as easy and stress-free as possible!
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