How I Saved Thousands Negotiating My Mortgage Terms
✦ 7-minute read ✦
Buying a house is an exciting time, but it isn’t a stress-free process. Part of the process is getting approved for a mortgage to help pay for the home. My wife and I recently went through this experience when we were moving from Florida to Indiana.
When we were choosing a mortgage lender, we wanted to make sure to pick one that could close on time with some unique circumstances we had. That said, we wanted to get the best deal possible on our mortgage, as well. Here’s our story about how we saved money negotiating our mortgage.
We Asked Our Real Estate Agent for Recommendations
As someone that had never lived in Indiana before, we weren’t sure who to choose as our mortgage lender. We asked our real estate agent for a recommendation. He referred us to a larger mortgage company in the area that did business the old-fashioned way.
We discovered the rates this mortgage company offered were higher than what we saw online for other lenders. The company stated their rates might be a bit higher, but they’ve never missed a loan closing. They assured us they would be the best option to work with our unique situation.
We Shopped Around
Rather than blindly use our real estate agent’s recommendation, we decided to investigate our options a bit more. After all, this mortgage is the largest debt we have ever taken out.
In addition to the local lender, we also got a mortgage quote from an online bank we regularly do business with. Their rate was 0.25% lower than the local lender, which made us happy. I asked if this was their best rate and they were able to offer me an extra $500 credit toward my closing costs since I was a customer prior to the loan application.
At the same time, my in-laws were purchasing a home and mentioned Rocket Mortgage offered them an even lower rate than our online bank offered us. We decided to give Rocket Mortgage a shot but found out their rates were the same as our online bank’s rates and Rocket Mortgage had higher fees.
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We Made the Lenders Compete
After getting an online quote with Rocket Mortgage, a representative reached out to us on the phone to see if we had any questions. I informed them our online bank had offered us a better overall deal and that we wouldn’t be using Rocket Mortgage. I read the numbers on our loan estimate, the official document detailing your estimated closing costs and other loan details, to the representative. Once I did, Rocket Mortgage was able to offer us an additional $800 credit. This made their mortgage the best deal. I then verified the other lenders had given me their best quotes, which they assured me they had.
Now that we had each lender’s best mortgage offer, we had to look at the intangible benefits. We wanted to make sure the loan would close on time without any issues. My real estate agent strongly suggested using the local company. He assured us the local lender could get things taken care of faster and locally if any problems popped up.
However, my conversations with Rocket Mortgage and my online bank assured me they would be able to take care of any issues that may occur the same as a local lender could. Based on this, we decided to move forward with the company that offered us the best deal, Rocket Mortgage. After closing the loan on time with no issues, we were glad we went with the company with the best pricing.
Here’s How You Too Can Save Money By Mortgage Shopping
As you can see from our experience, you can sometimes negotiate with mortgage lenders to get a better deal. Compared to the worst offer, I was able to find a rate 0.25% lower and save several hundred dollars in closing costs, as well.
If you’re shopping for a mortgage, there are a couple of key costs you’ll want to compare. First is the interest rate. The interest rate, the amount you’re borrowing, and term of the loan determine what your monthly payments will be. In general, the lower the interest rate you can get, the better off you’ll be assuming all else is equal.
The area people often get confused about is closing costs. These are real costs you have to pay as part of the mortgage process. Each lender has their own set of fees to originate and close a loan. These fees can vary dramatically from lender to lender, even if they offer the same interest rates. Lenders may charge points, origination fees, processing fees, and more.
Some fees, such as prepaids for escrow accounts and prepaid interest due until your first payment, are fairly similar across lenders. Instead, focus on the sections of your loan estimate titled origination charges, services you cannot shop for, and services you can shop for. These fees can be hundreds or thousands of dollars different.
You Need to Make the Lenders Compete
Once you have loan estimates from multiple lenders, it’s easy to compare each lender’s interest rates and fees. Use this information to get the lenders to compete for your business. Many lenders will match or potentially beat a competitor’s quote to get you to choose them.
Securing a 3.75% interest rate instead of a 4.0% interest rate on a $300,000 mortgage could save you over $15,000 if you keep the loan to maturity. That’s above and beyond any amount you save from negotiating lender credits or lower closing costs.
Don’t let real estate agents or mortgage professionals bully you into not shopping around for the best deal on your mortgage. Get many quotes so you can make an educated decision on what will likely be the biggest loan you ever take out in your life.