Now that you picked your offer, now it’s time for negotiation. Don’t be intimidated! It’s fun and we’ll show you how, step by step.
What can you negotiate?
Since you have your Loan Disclosure for each of your loan options, you have a list of costs all laid out for you, easy to read. There are a number of fees that you can negotiate with your lender.
Loan origination fees
The loan origination fee is the amount that a lender charges you for getting you a mortgage. Sometimes this number is a percentage of the loan amount, such as, 1% or 1%. It is generally a rather large sum, a few thousand dollars. On a $300,000 loan, it could be around $3,000 to $4,000, for example.
If you don’t see a fee this large, usually that means it is rolled into the interest rate. The fee will be hiding somewhere! People don’t work for free.
Since this is a fee the loan originator sets, this is a fee that can be negotiated.
Be aware that when your loan officer knows that you have other offers, they will become very frustrated. That is because they have spent some time with you thinking they are closing you (and will get their 1-2% of your loan amount as commission) and now they realize that is not necessarily the case.
Laws that went into effect a few years ago are meant to prevent loan officers from offering different rates to borrowers with similar credit and income profiles (before, studies show that mortgage rates sometimes varied by as much as 50 basis points (0.50 percent) between borrowers of similar traits and characteristics, at the same lender).
But, because especially brokers have access to different products, putting the squeeze on your loan officer CAN result in a lower rate, as they try to meet your other offer. They may bring the price down by offering you a slightly different product, for example and still stay within the law.
Lender service fees
These are fees that your lender controls (not outside parties), but are smaller than the loan origination fees, but still worth negotiating. Some examples of these lender service fees are underwriting services, commitment fees, application fees and mail fees. While these are smaller fees, you should still request that they be reduced or eliminated.
Your negotiation script
If you are the type of person who does not like to disappoint others, remember, this is a business transaction and you are fully entitled to get the best deal for YOU. This script will make it easy for even the most timid negotiator. And give extra power to the experienced negotiator.
In preparation for using this script, you’ll want to identify your top offers and identify the fees that you can negotiate for each in the categories above (loan origination fee, rate and lender service fees).
Rate reduction negotiation
You: Hi, I’ve really enjoyed working with you. I do want to make sure I get the best deal available. I’m sure that you can provide that, but I want to discuss a few things.
Loan officer: Sure. What can I help you with?
You: I’ve gotten a number of offers, and while I really want to work with you, I’d like to see if you can beat a rate I got, for the same loan amount and downpayment, of (best rate)?
Loan officer: Well… (now, they will be annoyed that you have other offers, when they were hoping to close you and get their commission) the rate I gave you is really the best I can do. Frankly, I’m surprised we’ve been working together this long and now you’re discussing rate.
You: I hope you can understand, I know that even just a little rate adjustment will help me a lot over time. All I’m asking is for you to match a rate I already have from another lender. What is the process to confirm a rate reduction? I’d really like to close this deal with you. Do you have a manager that you can make this request to so we can move forward?
Loan origination fee reduction negotiation
You: Hi, I also want to discuss this loan origination fee I see on the Loan Estimate.
Loan officer: That’s a fixed fee based on the loan amount. I don’t have control over that.
You: I’ve gotten a number of offers, and your loan origination fee is higher than some. I know that this is a fee that the lender controls. What can you do for me in order to reduce this fee?
Loan officer: Well… I can do some other things, like if you want to pay points, or pay fees upfront, but I can’t reduce my loan origination fee.
You: I don’t want to change anything else about the quote. I’m really interested in reducing this fee, as it just seems out of line with some of the other lenders I’ve been dealing with. How can we make this work? Do you have a manager that you can make this request to so we can move forward?
Lender service fee reduction negotiation
You: Hi, I know we talked about a rate and lender fee reduction. I’m wondering if some of these other fees can be reduced as well, such as (underwriting services, commitment fees, application fees and mail fees).
Loan officer: I’ve never been asked that before. Is that really important?
You: Yes, I’ve been studying my Loan Estimate forms from other lenders and noticed that some of your fees are high. I’d like to get a reduction or even eliminate some of them or all.
Loan officer: I think these fees are fixed.
You: From my understanding, the fees are set by the lender, so by that logic, your company is able to set the fees. I’m wondering, since yours are higher, if you can come down. Do you have a manager that you can make this request to so we can move forward?
Have an honest conversation with each, then get new Loan Estimates
You don’t want to be dishonest when having these conversations. If you say, for example, that someone is offering you a super low rate which is false, the loan officer will likely know that you are being dishonest because all of your offers will fall within somewhat of a known range.
When the loan officer gives you a better offer, make sure you get it in a Loan Estimate format again. Otherwise, you’ll be omitting important information.
You can plug the new information into the IMG app to make new comparisons.