How to Negotiate Mortgage Terms

Negotiating your mortgage terms can save you thousands of dollars.

There are various ways to negotiate the terms and costs associated with your mortgage. A mortgage payment is generally controlled by: Upfront closing costs, your interest rate, and costs on the back end such as property taxes and homeowners insurance premiums that often must be paid monthly. Because lenders tend to have some control over these fees, they can often be negotiated. It is advantageous for consumers to negotiate these terms since doing so could result in saving thousands of dollars for the mortgage.

Things You'll Need

• Your FICO Score
• Your debt to income ratio
• List of terms and rates that competitors are offering.

Instructions

The Negotiationg Process

1. Know your credit score. A stronger credit score puts you in a better position to be able to negotiate your mortgage terms. Check your credit before you begin shopping for a mortgage.

2. Shop the market for the going interest rates. See which criteria must be met in order to qualify for the more competitive interest rates. Having these criteria in mind will make your search for the perfect mortgage worthwhile.

3. Know your debt to income ratio. Having a low debt ratio gives you a little more bargaining room when shopping for a loan because lenders will perceive you as a better risk.

4. Apply with multiple lenders to get the best deal possible. Having more than one application will give you a tangible bargaining tool, particularly if each of the lenders has loan features that you find attractive. Having multiple options gives you the leverage to have your loan officer craft the loan that works best for you.

5. Shop around for the best interest rate. If Lender 1 is offering a higher interest rate than Lender 2, ask Lender 1 for a lower rate. Let the lender know that Lender 2 is offering a better rate and see whether that lender can be competitive.

6. Ask the lender what origination costs are applicable. These are the costs the lender charges for extending the loan to you. This fee can often be negotiated and it is important to shop around to see which lender is charging less in origination fees.

7. Ask whether you are being charged "points" for lowering your interest rate. If you are, do a cost benefit test to determine whether the lower interest rate is worth the costs. To do so, ask yourself whether you are saving money in the long run.

Tips & Warnings

• Find out whether the lender will require you put funds into an escrow account to pay your taxes and homeowners insurance. Although these items are beyond your lender's control, by being proactive and shopping around, you could lower your mortgage payments by finding a lower homeowners insurance premium. Moreover, if you qualify for any housing tax exemptions, you could lower your tax rate on the home, ultimately resulting in lower mortgage payments.

• Your lender could require you to purchase Private Mortgage Insurance (PMI). PMI is an insurance policy that insures the lender's investment if you default on your loan. Lenders typically require this type of insurance when your loan is more than 80 percent of the home's value. If this is the case, see whether the lender has other loan options that do not require the purchase of PMI.

References

• Negotiate Mortgage Rates
• Negotiating Better Terms for Your Mortgage
• How to Negotiate Mortgage Terms