3 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 your 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 for You Are (if you are my client):
(A) for you to get a competitive, fair-market interest rate for your mortgage,
(B) for you to be charged fairly by your lender to obtain the loan
(C) for you to have the least amount of stress as you try to obtain final loan approval and close your home purchase (which translates to getting competent service and great communication from your loan officer).
Here is My Simple 3-Step Guide to Finding the Lowest Interest Rate For Buying a Home
Step 1: Get Preapproved & Ask Questions
Getting preapproved is the ONLY way to truly compare lenders. I recommend that you get preapproved with at least 2-3 lenders. You'll need to fill out a loan application and send in a bunch of documents. And don’t worry about rates/fees right now (you can’t lock an interest rate until you get a property under contract, so any rates that lenders quote you right now are almost worthless, and some banks use teaser rates that aren’t even realistic). Just get preapproved and ask questions to learn as much as you can about your loan options.
This is also a good time 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 Tips for Finding a Good Loan Officer.
I'll repeat these two things, because they're important, and I don't want them to get lost amidst the other points. (A) You don't need to negotiate the interest rates or fees at this stage... Just get preapproved and get to know the loan officer.
And (B) this is a great time to ask questions and learn about your mortgage options. The more you ask, the more prepared you will be. Here is my list of 14 questions to ask during your preapproval process.
Step 2: Wait Until You Get an Offer Accepted, and Then...
When you get a property under contract, the process is simple if you are already preapproved with a few lenders that you like.
You just email all three lenders the next morning and tell them you have a home under contract. Let them know you'd like to decide on a lender that day.
Ask them to send you their PAR RATE (the interest rate that doesn’t require any additional discount fee charges or costs to buy down the interest rate) if you are to lock with them that day AND a breakdown of any lender-related fees/costs associated with getting this loan.
Don’t worry about third-party costs (such as escrow, title insurance, etc.). These are determined by the third-party vendors and are all going to be exactly the same no matter which lender you hire. Escrow will have a breakdown of the third party costs for you and your lender in a day or two.
Hopefully they will all respond quickly, and you can compare the lenders side-by-side and make a decision. This is the only way to compare apples to apples (because interest rates change every day and sometimes throughout the day).
I can help you compare your lenders when the time comes. But this way, they all get back to you the same day, and you can make a decision that day on who to move forward with. This only works if you’re already preapproved (otherwise they can’t get you a real rate quote when you need it).
Step 3: Make a Strong Choice
Make your decision about which lender to move forward with and let them know. You will want them to order your loan disclosures and your appraisal right away, so they can stay on track for your appraisal and loan contingency removal deadlines (talk to your buyer's agent about this if you don't know what I'm referring to). Tell the other lenders that you've decided to go with another lender.
The 3 Components of Choosing the Best Lender for Your Home Purchase:
Low Rate. Low Fees. And Reliability. This is what you're looking for in a lender for your San Diego home purchase. And just because it's a big bank, does not mean they are reliable (oh, I can tell you horror stories).
If you find that the lenders are quoting you the same (or similar) interest rates and fees, then 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 loan comparison. It's extremely important to compare rates and fees on the same day (because interest rates fluctuate up and down so often).
This process helps you to compare your top lender 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 it's important that you 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 OR if you wanted to be extra sure that your loan will get approved one way or another.
If you have any questions about the home loan approval process, I'm always happy to help!