Here’s What to Negotiate with Your Mortgage Lender
When you think about shopping for a mortgage, your mind probably goes first to interest rates. Yes, you could save thousands of dollars by comparing rates between lenders. But that’s not all that goes into getting a good deal on a mortgage.
Upfront fees that lenders charge you to close a loan can frequently hit thousands of dollars as well. A few of these fees might be set in stone, usually ones dictated by a local government. Most everything else is up for negotiation. You’d be surprised how much wiggle room loan officers have to close a deal.
In this article, we’ll go over the most important fees you should pay attention to when bargaining your mortgage deal — and offer tips on how to get your best deal.
What mortgage fees can you negotiate?
There can be a dozen categories of mortgage fees you’ll run into when shopping for a loan — and sometimes even more. However, most of them you can negotiate by asking for a lower cost or waiver.
Common mortgage fees
|Mortgage Fees and Typical Costs|
|Loan origination fee||The cost to process, document, administer, underwrite, audit and fund a mortgage.||1% of the loan amount|
|Application fee||The cost to apply for a mortgage. It may also include the cost of pulling your credit reports and scores.||$25-$150|
|Discount point||A fee you pay to “buy down” to a lower mortgage interest rate. Also known as prepaid interest.||1% of the loan amount|
|Commitment fee||The cost to guarantee a loan for a future date.||Varies|
|Rate lock fee||The cost to lock in a specific mortgage rate. There may not be a fee for the initial rate lock, but if your rate lock expires before your loan closes, there will likely be a fee to extend the lock.||Up to 0.5% of the loan amount for a rate lock extension|
|Pest inspection fee||The cost associated with having the property inspected for termites or other infestations.||$75 to $500|
|Survey fee||The cost associated with surveying the land on which the property sits and identifying its boundaries.||$85-$600|
|Title services||The fees related to transferring ownership of the property, including title search, title insurance for both the lender and the homeowner and a settlement agent fee.||Varies|
Where to start?
Some costs will be easier to negotiate than others. For example, if your lender charges a commitment fee, you could possibly haggle on the amount you’re charged, said John Stearns, a senior mortgage banker at American Fidelity Mortgage Services in Milwaukee.
“That would be a negotiable fee, I’ve got to believe, because that’s going to the broker or to the lender,” he said.
The same goes for an application fee. If you’re charged to apply for a mortgage, you could negotiate for the cost to be reduced or removed. Your lender may not budge on the heftier fees, however, which is why it’s important to shop around with multiple lenders.
“Getting people to waive a 1% origination fee might be hard, (but) getting them to waive an application fee might be easier,” Stearns said.
For any fees that you negotiate, it’s possible you’ll receive a lender credit instead of having a fee waived or reduced, depending on loan pricing factors, Stearns added. A lender credit allows you to offset your closing costs by requiring you to pay less upfront in exchange for a higher interest rate. Be sure to check with your lender about available credits.
Fees that can’t be negotiated
Each mortgage lender has its go-to third-party companies to assist with the loan transaction, and the fees they charge are fixed and non-negotiable. These are the services you can’t negotiate:
- Appraisal fee: The cost associated with determining a home’s value.
- Credit report fee: The cost to pull your credit history.
- Flood determination fee: The cost to determine whether the property is in a flood-prone area.
- Flood monitoring fee: The cost to monitor the property’s location for changes to flood zone designation.
- Tax monitoring fee: The cost to monitor that the property taxes are being paid on an ongoing basis.
- Tax status research fee: The cost to determine the homeowner’s property tax payment status.
Although these fees can’t be negotiated, you can compare costs by reviewing your Loan Estimates before choosing a lender for your home purchase.
3 ways to boost your negotiating power
Consider the following tips to improve your chances at successfully negotiating with your mortgage lender.
Improve your credit beforehand
The better your credit reports and scores look, the better your mortgage terms. Take the time to tidy up your credit profile by maintaining an on-time payment history, paying down your existing debt and refraining from applying for any other types of credit. Shoot for a credit score of 740 or higher, as this is potentially the minimum score needed to get your best mortgage rate. Double-check with your lender for more information about their credit score thresholds in relation to rates.
To further underscore the importance of credit scores, consider the following data: Borrowers with a credit score of at least 760 were quoted an average 4.59% annual percentage rate, while borrowers with a score in the 620-639 range were quoted 5.59% on average, according to LendingTree’s latest Mortgage Offers Report. An annual percentage rate represents the total cost of borrowing a mortgage, including your interest rate and closing costs.
Lenders want to trust that you’ll be a creditworthy borrower and will scrutinize your credit history to determine what type of mortgage interest rate you’ll receive, along with the several other costs related to buying a home.
Get multiple quotes
Don’t just stop at applying with one mortgage lender — do your due diligence by gathering quotes from two to three lenders and comparing them all by reviewing the Loan Estimates you’ll receive.
Mortgage lenders are required to deliver a Loan Estimate to you within three business days after you apply for a mortgage. With this document, you’ll be able to do an apples-to-apples comparison of the fees each lender charges and determine where it makes sense to negotiate.
Keep in mind that you should gather all of your mortgage quotes within a short time frame to minimize the impact on your credit score. For older versions of the FICO score formula, the rate shopping period is 14 days; for newer versions of the formula, it’s 45 days. Inquiries made during the applicable window are all treated as one inquiry instead of multiple.
Make a larger down payment
Putting down more than the bare minimum could help put you in a more favorable position with your lender. After all, the larger your down payment is, the smaller your mortgage will be.
You may also score a lower mortgage rate with a larger down payment and, if you put down at least 20%, you’ll avoid mortgage insurance, which is added to your mortgage payment each month.
Why you should shop around for a mortgage
Just like it’s necessary to shop around for many products and services, it’s important to do the same in order to find your best mortgage lender for your home purchase. Taking the time to comparison shop interest rates before you start negotiating on the fees often means saving money in the long run.
As an example, let’s say you’re buying a home that requires a $300,000 mortgage. You could accept the first loan offer you get. But by finding even a slightly lower interest rate, you could realize a savings of thousands of dollars on interest payments over the life of a 30-year fixed-rate loan, according to data from LendingTree’s Mortgage Rate Competition Index.
Aside from shopping around for a lower mortgage rate, it’ll be worth your while to bargain with your mortgage lender to be charged less for the costs and fees of borrowing a home loan.
The bottom line
Deciding to get a mortgage is a long-term financial commitment, and you should do your part to ensure you’re saving as much money as possible on the transaction. Take the time to review all the fees related to the origination of your loan and work with your lender on lowering those costs.
For help determining which mortgage lender is right for you, read our explainer on the different types of lenders.