4 Steps to Negotiating the Lowest Rate and Fees for Your Home Purchase Loan
When obtaining a loan, it's human nature and common sense to want the lowest interest rate and lowest fees. Even negotiating a rate that is only 1/8% lower can save you thousands of dollars over the life of your loan (especially if you keep the loan for 20-30 years). For example, if you put down $120,000 on a $600,000 home purchase, and your interest rate drops from 5.125% to 5.000%, you only save $37/month on our mortgage payment. But that $37/month turns into $13,320 if you keep that loan for 30 years! I have found that the strategy laid out in this article works well for home buyers who want to negotiate the lowest rate and fees for their home purchase loans.
My goals in regards to my clients loans are: (A) for my clients to get a fair market interest rate for your mortgage, (B) for my clients to be charged fairly by your lender to obtain the loan, and (C) for my clients to have the least amount of stress as you try to obtain final loan approval and close your purchase (which translates to getting competent service and great communication from your loan officer). Here is a step-by-step guide to achieving these three goals:
Step 1: Identify several banks and top mortgage professionals and establish a conversation with them before you start looking at homes. This is a good time to get pre-approved for a mortgage and to identify any potential problems or hurdles for your approval. If your loan officer says there are no hurdles, chances are that the loan officer is being lazy. In today's world, there are almost always issues that need to be handled strategically in order for your loan to be approved with the least hassle possible. There are major differences between average loan officers and top mortgage professionals, so take the time to find the good ones. Here are my 7 Critical Tips for Finding a Good Loan Officer.
Step 2: Contact your top choices as soon as you have an accepted offer to buy a home. It's usually best to do this on a week-day and early in the morning. Tell them that you have an accepted offer for X amount of dollars, and that you are in the process of making your final decision on which lender to go with.
Step 3: During that early morning contact (from Step 2), ask each of your top choices for some specific information. Ask them: "If I lock my loan with you today, what will my interest rate be, what fees will you charge me, and can you please send me a Good Faith Estimate today?" It's important to get the actual Good Faith Estimate (GFE). The GFE is a form that all lenders have to use these days. It helps you to compare what different lenders are offering you. Some lenders are hesitant to send you a GFE, because they are obligated to stand by those quotes once they send them to you.
Step 4: Compare the Good Faith Estimates side-by-side and make a decision. If you find that the interest rates are all the same and the fees vary slightly, choose the loan officer that you feel the most confidence in to close your loan on-time and with great customer service. If one lender has a lower rate or fee, but you feel more confident in another lender, this is your chance to ask the loan officer you feel more confident in if he/she is able to match the low rate or low fee of the other lender. In an ideal world, you get all three (low rate, low fees, and great loan officer).
Please realize that the whole point of this exercise is to get your lender to put something in writing so that you can compare it with the other lenders you are considering. This process is the only way to achieve an apples-to-apples comparison. It's extremely important to compare GFEs from the same day (as interest rates fluctuate up and down so often). This exercise helps you to compare your top choices, to be armed with information that helps you negotiate with your favorite choice, and to make a final decision after being fully informed. You may take a day or so to review everything, but soon afterward you should move forward with your top choice. You need to get an appraisal ordered and you need to get your loan submitted to underwriting, so you want to move forward as quickly as you can.
In some extreme cases you may want to move forward with two lenders at the same time (but keep in mind that you will have to pay for two appraisals if you do that). You would probably only do this if you were terribly unsure of your lender's ability to obtain an approval for your loan. If you have any questions about the loan approval process, I'm always happy to help!
See Also: How to Find a Good Property Inspector
Justin Gramm is the founder and principal broker of Globella Buyers Realty, your San Diego Exclusive Buyer Brokerage.
Exclusive Buyer Agents do not list homes for sale and never represent sellers. They have no "inventory" to try to sell you. They can represent you in purchasing any home. They are specialists at representing buyers only on the buyers' side of the transaction. Exclusive Buyer Agents work to get buyers the best price and terms when they buy a home.
If you have excellent credit and plan to buy a home or condo in San Diego County within 90 days, contact Justin Gramm to hire an agent on your side of the transaction. More about Justin Gramm on Google+. Call Justin at (858) 437-2662 or E-mail.