How to Negotiate Mortgage Rates

Buying a house is all about negotiating. You’ll want a seller to accept your offer, and then you might try to get some concessions to cover a portion of your closing costs. 

However, the negotiation process isn’t limited to the buyer-seller part of the deal. You should also be prepared to negotiate your loan’s interest rate with a mortgage lender. 

With mortgage rates still hovering in the 6% to 7% range, finding a way to save on your borrowing costs can mean the difference between buying a new home and not. Read on to learn everything you need to know about negotiating mortgage rates. 

Can you negotiate mortgage rates?

Mortgage rates aren’t set in stone. In fact, 26% of homebuyers who negotiated their mortgage rates successfully managed to get a better deal in early 2022, according to research from Fannie Mae. However, very few homebuyers during that same period actually tried to bargain with their lenders. Only one-third of all buyers attempted to haggle over mortgage-related costs.

How to negotiate mortgage rates

When it comes to setting your mortgage rate, the power is tilted in the lender’s favor. After all, the company is loaning you a large chunk of money to afford the home. With that in mind, start the process by focusing on the factors that are in your control. Here are six tips to bring down your mortgage rate.

1. Strengthen your application

When you’re bargaining with a lender, do everything possible to increase your attractiveness as a borrower. That means taking time to get your finances in tip-top shape. Pay off your credit cards and build up your savings to make a larger down payment. Lenders prefer to see a high credit score (740 or greater) and a low debt-to-income ratio (less than 36%).

2. Get rate quotes from multiple lenders

You got preapproved by a lender, so you’re all set, right? Wrong. While you may wind up going with that initial lender, it’s important to look around and other options first. According to research from Freddie Mac, shopping around with multiple lenders can help borrowers save between $600 and $1,200 per year.  

3. Lower your mortgage rate with discount points

In addition to trying to get a lender to offer you a lower rate, you can actually buy your way into some savings. In exchange for a fee, mortgage points (also known as discount points) let you lower your interest rate. That means 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.

While paying for points will increase your upfront costs, it can help you in the long term. 

One point translates to 1% of the loan amount, and each point typically lowers the rate by 0.25%. So, let’s say you take out a $300,000 loan for a 30-year fixed mortgage, with interest rates at 7%. Paying for two points would cost $6,000 and get your rate down to 6.5%. Having that lower rate would decrease your monthly payment by around $100, saving you a total of $36,521 over the course of the loan. If you subtract the $6,000 you paid upfront, the difference would be around $30,000 in savings. 

4. Look out for new construction deals

If you’re interested in buying a brand-new home, pay attention. As builders complete new homes, they need to incentivize people to get off the sidelines and buy recently finished property. Marr points out that a lot of builders are offering 2-to-1 rate buydowns. That means that for the first year, you pay 2% less than the rate you locked in, and for the second year, you pay 1% less. Getting lower rates for the first 24 months can help new homebuyers afford a home. 

5. Know when to lock in a rate and ask about float-down options

Mortgage rates move up and down constantly. So while your lender might advertise 7% interest rates today, that could jump to 7.3% tomorrow. To avoid the potential for an increase, you can lock your rate, essentially preventing any upward movements until the closing date. Rate locks typically come in 30-, 45- and 60-day windows, which means you’ll need to be prepared to move to close within that time frame.

Additionally, as you shop around for the right lender, ask about a float-down lock option. This gives you the chance to secure a lower rate if rates decrease from the time you apply for a mortgage and the time you’re ready to close on the loan.

6. Remember that refinancing may be an option

The current market of high housing prices and steep mortgage rates certainly isn’t creating many reasons for buyers to feel optimistic. However, Marr points to the bigger picture: There’s a high chance that rates will go down over the next several years. Though homeowners might not see rates at or below 3%, they can still probably count on being able to refinance and get a lower rate sometime in the future, Marr said. 

Negotiate your mortgage fees and closing costs

While negotiating your rate is critical for your long-term homeownership costs, it’s also important to work to lower your upfront expenses. Buying a home comes with loads of one-time transaction costs that can add thousands of dollars -- or sometimes much more -- to your budget. In some cases, there are opportunities to trim those expenses. Let’s take a look at fees that are generally negotiable versus nonnegotiable. 

Negotiable fees

• Application fees: Some lenders charge an application fee, but this isn’t set in stone. If you really don’t want to pay one, ask a lender whether they will waive this expense before bothering to apply.

• Origination fees: Most lenders charge a fee for originating the loan, which often tacks on around 1%  of the loan amount. However, if you have a strong application, ask about potential discounts.

• Appraisal fees: You’ll have to get an appraisal of the property value, and in most cases, cover the cost of paying the professional for that assessment. However, Fannie Mae’s research shows that a small number of homebuyers managed to negotiate their appraisal fees. It never hurts to ask.

• Homeowners insurance: Homeowners insurance is a must -- a lender won’t let you sign any documents without it. However, you don’t have to choose the first option. There are loads of insurance companies, so shop around for multiple quotes.

Nonnegotiable fees

• Transfer taxes: In most places, the taxes on a home sale are referred to as transfer taxes -- meaning a tax on the transfer of property ownership. While they might have different labels such as conveyance fees or stamp taxes, the cost is set in stone by the government. You might be able to get the seller to cover them (and in some cases, they might be required to do so), but you aren’t going to be able to haggle on the cost.

• Property taxes: You’ll need to pay a prorated portion of the property tax bill, and there isn’t any wiggle room on the price here.

• Credit check fees: Your lender will charge you a fee for pulling your credit report, and this is typically a fixed cost.  

Why shopping around is critical 

Mortgage rates are generally high, but even a 0.5% rate variation can make a big difference over the course of a loan. 

It’s not just about rates, though. Shopping around for a mortgage lender lets you get a good sense of different fees. You’ll also be able to see which lender can offer the best service and attention to you as a borrower. Find the lender that can lower your cost and stress.

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