Mortgage Negotiation Explained
Doing a mortgage negotiation properly can save you thousands or even tens of thousands of dollars.
First of all, mortgage fees are negotiable. Just because you receive an official looking stack of documents from a mortgage broker or lender doesn't mean you can't negotiate.
You will get your "mortgage quote" in the form of a good faith estimate. This will outline the expected charges. This is not a guarantee of final loan costs. It is only an estimate.
Like most things, mortgage fees are negotiable.
Mortgage fees are structured in one of two ways:
-fixed mortgage fees
-variable mortgage fees
Fixed costs are mortgage fees that don't change with the size of your loan. If a processing fee for a mortgage is $750, it should be the same whether the loan is for $200,000 or $800,000. There isn't any difference in the amount of paperwork a lender has to do on either loan.
Variable mortgage fees are fees that change with the size of the loan. They are typically a percentage of the loan. A "point" is 1% of the value of the loan.
These are still negotiable charges.
Mortgage fees are also charged by different sources:
-lender or broker charges
-third party charges
A lender or broker has control over their own charges. They generally don't have much control over third party services. These third party charges are charges you are likely to incur regardless of which lender you use.
Negotiating Mortgage Fees - Areas To Focus
The largest area to focus on is the lender/broker fees. These are usually described in terms of "points". A $500,000 loan that charges 2 points as a broker fee means the broker fee is $10,000 (2% of $500,000).
Lenders can charge you to "buy down" your loan. This means you pay up front to lower your interest rate. They can also charge you an "origination fee" which is their charge for lending the money. This is separate and in addition to other charges they may have.
Many large lenders and brokers have charges that are not that negotiable, such as their underwriting fee or doc drawing fee. The big fees are always negotiable, and this is where you should spend most of your time.
These fees can be negotiated by comparing the good faith estimates received from different sources. You can use competing offers as leverage in your mortgage negotiations. Keep in mind that if you exaggerate a competing offer a person in the business may be able to tell. Their job is to stay on top of interest rates.
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