How to negotiate a better mortgage rate

Did you know that you can negotiate your mortgage rate? Here's how to do it. (iStock)

As a soon-to-be homeowner, one of the most important steps of buying a home is securing an affordable mortgage rate. To secure the lowest rates, you may have to negotiate.

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With that in mind, there are things home buyers should do when negotiating your mortgage rates. Armed with this knowledge, you should be able to use your negotiating power to the fullest and find lower rates. Here are five ways to negotiate a better mortgage rate:

  1. Compare multiple lenders and loan rates
  2. Ask a bank or lender to match other mortgage offers
  3. Use discount points
  4. Build up your credit card history and score
  5. Make a bigger down payment

1. Compare multiple lenders and loan rates

One personal finance tip shared all the time is to shop around for mortgage rates. This tip is popular because it is true. The rate you were given can vary between mortgage lenders, so it's important to get quotes from multiple companies before applying for a loan.

In today's interest rate environment, in particular, it's possible to secure a historically low rate. At the time this article was written, the average interest rate on a 30-year fixed-rate loan is 2.87%. That's more than half a point lower from the average rate at this time last year, which was 3.57%.

Be sure to visit an online mortgage broker like Credible to get personalized rate quotes in as little as three minutes without affecting your credit score. Once you have this knowledge in hand, you will be able to compare loans to see which one makes the most sense for you.

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2. Ask a bank or lender to match other mortgage offers

It's important to note that those rate quotes can also serve a secondary purpose. Often, you can ask lenders to match other mortgage offers. If you choose to do so, having another rate quote available to serve proof that you were given a lower rate will give you more negotiating power.

However, in addition to negotiating your interest rate, you can also ask about the various fees that are being charged. While not all mortgage costs are negotiable, some have more flexibility. For example, while appraisal costs and title insurance fees are usually set in stone, you’ll likely be able to negotiate lender-specific fees like the application fee or origination fee.

Credible can help you compare lenders and mortgage rates from the comfort of your own home.

MORTGAGE RATES TODAY: COMPARE HOME LOAN INTEREST RATES

3. Use discount points 

If your goal is to secure the best possible interest rate, another option may be to use discount points. Also known as mortgage points, these are fees that you can pay directly to the lender in exchange for a lower interest rate. Essentially, with this method, you're paying upfront to secure a lower payment over the life of the loan. Usually, you can expect to pay 1% of the loan amount per point.

With that said, where points are concerned, it's absolutely crucial to understand how long it will take to break even on your purchase. You’ll also want to consider how long you plan to be in the home. In general, if you're only planning on staying put a few years, points may not be worth the upfront cost.

When it comes to comparing mortgage lenders, Credible is your go-to source. Credible can help you secure lower rates — or connect you with a loan officer for further assistance.

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While any loan estimates you receive will likely contain information about what it would cost to buy down your rate with points, if you decide to go that route, you can also use a mortgage calculator to get a sense of your monthly payment whether investing in points may benefit you.

4. Build up your credit card history and score

Another thing you can do to ensure you secure the best interest rate is to work on your credit score before you apply for a loan. Truthfully, no matter what the current rate forecast looks like, the best interest rates are always given to the borrowers with the highest scores.

If you're confident in your credit score, then you can plug in some of your information into Credible's free online tool to find out what kind of mortgage rates you qualify for.

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If you take the time to ensure your score is in good shape, you’ll have more options when it comes to selecting which loan type makes the most sense.

To that end, if your goal is to increase your credit score, there are a few things that you can do: First, make sure to always make your payment on time. Payment history accounts for 30% of your overall credit score.

Next, make sure to keep your credit utilization ratio, or the amount of credit you're using versus your total available credit, as low as possible. That figure accounts for an additional 30% of your score.

5. Make a bigger down payment

Lastly, making a bigger down payment could also help ensure that you have access to the best interest rates. Put simply, the size of your down payment affects your loan-to-value ratio. If your loan-to-value ratio is less than 80%, which means you’ve made a down payment of over 20%, you'll likely get access to the best available rates.

If you don't have enough savings to make a big down payment, you could always ask your lender about available home buyer programs. Often, these programs try to ease the upfront cost burden of buying a home by offering grants or silent loans that can be put towards your down payment or closing costs.

If you have specific questions about your mortgage options, visit Credible to be connected with an experienced loan officer today.

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