How to Negotiate
How to negotiate: The following is a breakdown on how to save the most money on fees while achieving the best rate possible. You will see a common formula involved in each example given. This formula is the key to figure out what lender is giving you the best rate and terms to fit your situation. Because the new GFE is so hard to read, we reccommend asking your lender to provide another format for the breakdown of costs. Ask your lender for a Fee worksheet…this is another format that will be easy to understand.
The Formula.
Step 1 – Get at least 2 Good Faith Estimates.
Step 2 – Compare your loan offers. Analyze
Step 3 – Negotiate. Go back to your prospective lenders and ask them to lower fees
Step 4 – Make a decision on a lender. Have them lock your rate!
**Once you have engaged lenders to provide a Good Faith Estimate (or fee sheet), be prepared to receive, review and choose which lender you will use within 24-48 hours. This is very important as interest rates change daily!
Listed below is a step by step process to help you save the most money possible while achieving the best rate. If you follow the steps in the order presented, we can guarantee you will start the negotiation process with a clear understanding of what fees you are responsible for and where you can save. This will also help you guard against your lender attempting to change fees later in the process.
STEP 1: Get at least 2 Estimates. In order to compare anything, you will need more than one example to evaluate. That is why STEP 1 is to get at least 2 good faith estimates from prospective lenders. Unless you have a predetermined plan of what rates and fees “should be”, the only way to truly know what the “real world” mortgage market can offer you is to get more than one estimate. Please remember: even though you may be extremely comfortable with your loan officer, lenders are in the business to make money. Keep’em honest!!!
REAL WORLD: Talking to a family member, neighbor or someone at the office about what interest rate they got is OK but shouldn’t be assumed to be the rate you deserve. Each individuals financial situation is different. Rates are directly associated with a persons credit score, loan to value (how much you are putting down or equity) and debt to income ratio (total debt) . No two (2) borrowers are the same! Get your estimate in writing from someone! Otherwise, you are going into the transaction at a major disadvantage.
STEP 2: Compare all sections of the GFE . Analyze.
We can’t stress enough the importance of comparing all of your estimates line by line. Please click on the “sample Good Faith Estimate” link located on the Good Faith Estimate tab on our home page. This form as well as others are there for your review and to make you feel more comfortable with the format. Here are a couple of things to consider:
Are the loan amounts exactly the same? This is the most important piece as we have to compare apples and apples. Several closing costs are tied to the loan amount directly. If amounts are not exact, you will not be able to analyze the estimates accurately.
Who has the lowest charges? You need this to see who is requiring the lowest upfront fees (short term savings for you). This will also be used to figure out what is most important to you:. Paying slightly higher fees and a lower interest rate or getting lower fees (out of pocket) and possibly a slightly higher interest rate.
Who has the lower interest rate? We need to know who is offering the lowest long term interest savings. This is important because even if the fees may be higher on an estimate upfront - it may be best to have a lower rate for the long term. If one prospective lender has the lowest rate and lowest fees…you are way ahead of the game!
Question?
How long will you be staying in your home? Answering this question honestly and to the best of your knowledge can save you hundreds of dollars upfront – and possibly thousands over the life of your mortgage. Note: This question is important to answer as conservatively as possible. Reason: the lesser the amount of time that you will be living in your home, the lower you want your out of pocket expenses to be at closing. Chances are if you will only be staying in your home for a couple of years, the extra costs for getting a lower interest rate may not be worth it. On the other hand, if this is your “forever house”, you will want to get the lowest rate possible (within budget) for long term savings on interest charges. Did you know that the difference in interest savings over 30 years between a loan with an interest rate at 5.375% vs. a loan at 5.50% ($102,000.00 loan) is $2870.00? Imagine if you got an even lower rate. Increase that loan amount to $204,000.00 and the savings doubles! That is a lot of money to save…just by asking the right questions. This information is owned by www.JaxBestRate.com . Its use cannot be duplicated in any form without the written consent of www.JaxBestrate.com . TM
Step 3: Negotiate. Go back to your prospective lenders and ask them to lower their fees.
The only way you can do this confidently, is to compare all offers. This will paint the whole picture on where you should start your negotiations. What fees do you ask to be reduced or deleted? Below, we have listed what fees ( in order of importance) you will have a greater chance of reducing or deleting.
#1) **801: Origination Fee – This is the first fee to negotiate. This Origination is normally 1% of the loan amount. If you are working with a mortgage broker, note what their yield spread premium is (Line 813 or so). We can almost guarantee there will be a percentage noted. Note: if discount points (Line 802), are listed on your GFE, there should be no yield spread premium. The reason for this is, discount points are to be paid directly to the lender to discount the interest rate being reduced. Total fees paid to the lender divided into the loan amount.
#2) ** 808: Mortgage Broker Fee – Your next fee to negotiate. If there is no origination fee listed, this is your first fee to tell the broker to reduce or delete. If there is an origination fee and a mortgage broker fee, DO NOT PAY BOTH! This may be a percentage of the loan amount, a flat fee, or both. Once again, notice if your broker has noted a yield spread premium. He or she is getting paid this amount via commission outside of the closing. Total fees paid to the lender divided into the loan amount.
#3) ** 810: Processing Fee – Your next fee to negotiate. All loans need to be processed. That isn’t your fault. Whether you pay a processing fee or not, the loan will get processed somehow. Some brokers charge a processing fee, some brokers don’t. Perspective: More of the smaller broker companies will charge a processing fee. This isn’t necessarily a bad thing because they will probably have a lower interest rate than a bank or larger mortgage company. Make sure you have added up all lender fees per the JaxBestRate worksheet. If you are negotiating this fee first (because no origination or broker fees are charged), you have probably started out with a pretty good deal. Total fees paid to the lender divided into the loan amount.
#4) **811: Underwriting Fee – Your next fee to try and negotiate. 2 things to take into account to see if this fee can be deleted. If you are working with a lender that is paying a staff employee (employed directly by the lender), to underwrite the loan, the fee can be reduced or deleted. This means all fees are going directly to that lender. If you are working with a broker, they will note whom the fee is being paid to on the GFE. At least they are supposed to. If the fee is being paid to another lender, the only chance you may have of your broker reducing the fee is to get a broker credit via the yield spread or reducing another fee altogether. Total fees paid to the lender divided into the loan amount.
#5) **800 series or 1300 series - Application Fee – Some lenders will require an application fee to start the process. This may or may not be negotiable per their company policy. You will probably have more bargaining power with a smaller company as far as this fee goes. If you are paying this, make sure that all fees that will be paid for are for services actually rendered and not for a lazy loan officer or broker’s time. Good luck on this one.
#6) 1300 Series: Additional Settlement charges: Make sure that these fees are being paid directly to the lender. It should be noted who they are being paid to on the GFE. These fees are normally “fillers” – lower costs to pad the pocketbook. Do not pay any of these fees! Total fees paid to the lender divided into the loan amount.
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#7) 1111, and 1112: Other Title Charges: These are absolutely unacceptable. The fact
that a borrower would have to pay for something to be faxed or copied is ludicrous. This fee directly pads the attorney or closing company’s pocket. Have your Realtor negotiate these fees to be paid by the seller if a purchase transaction. If a refinance, find another company to close your loan or have the fees reduced dramatically.
#8) 1101: Closing/Escrow Fee – This fee is out of the control of your mortgage broker or loan officer on a purchase, but totally negotiable on a refinance transaction. This fee is directly paid to the closing company. Have your Realtor negotiate these fees to be paid by the seller if a purchase transaction. If a refinance, find another company to close your loan or have the fees reduced dramatically.
#9) 1105: Doc Prep Fees - This fee is out of the control of your mortgage broker or loan officer on a purchase, but totally negotiable on a refinance transaction. This fee is directly paid to the closing company. Have your Realtor negotiate these fees to be paid by the seller if a purchase transaction. If a refinance, find another company to close your loan or have the fees reduced dramatically.
#10) 1107: Attorney Fees - This fee is out of the control of your mortgage broker or loan officer on a purchase, but totally negotiable on a refinance transaction. This fee is directly paid to the closing company. Have your Realtor negotiate these fees to be paid by the seller if a purchase transaction. If a refinance, find another company to close your loan or have the fees reduced dramatically.
REAL WORLD: The Title Company’s and Attorney’s that close loans do take on risk in delivering a clear title commitment to you at the closing. We do feel that they are compensated well with the amount earned from the lenders policy required for each purchase transaction closed. These firms are paid 70% of the promulgated rate and all title endorsements. If you are a buyer of a home and didn’t have a choice in choosing where you close, make sure the seller is paying all the fees. If you are refinancing a home, try to contact the company with whom you originally purchased your home. They will most likely give you a better deal because all the heavy lifting has been done for the title policy on the original closing. Do make sure you get an Owners Title insurance policy though when you buy a home. Make sure the cost is under $125.00 (it only costs the title company $25.00 for this policy). This will save you money and provide possible protection in the future. This information is owned by www.JaxBestRate.com . Its use cannot be duplicated in any form without the written consent of www.JaxBestrate.com. TM
Step 4 – Make a decision on a lender. Have them lock your rate!
After you have gone back to your lender and asked them to lower their fees, go down the
new GFE’s line by line and put the new – lower fees right next to the others on your worksheet. This will be easier to compare and make an accurate decision. Add them, and assuming all other information has remained the same - go with whatever lender has the lowest rate and fees. IT IS THAT SIMPLE. If you don’t feel comfortable with what has changed from either lender, you can always go back to them another time…
NOTE: Make sure to check that all other fees on the GFE (not negotiated lower) have not changed! Also make sure that the loan amount and interest rate has not changed from the original estimate!
If it is time to make your choice, we have listed a few questions for your lender to answer. These are questions that should be asked at the beginning of the negotiating process and now have to be again confirmed.
1) Will my loan be locked for a 30 day period? Interest rates are locked in for primarily in 15 day, 30 day, 45 day, and 60 day periods. The longer you have to lock your rate, the higher your rate will probably be. NOTE: rates are quoted to the public based on a 30 day lock in period. This should be the minimum lock time accepted when negotiating your rate. Make sure you are comparing apples and apples with your lenders.
2) Will you be able to deliver my closing documents to the closing company within that 30 day period? If not, will you extend my locked rate for free? These answers are needed to make sure your interest rate is secure and your loan will close on time. Please make sure to get all information to the lender within 24 hours after requested. This will give the lender time to review all the information, and not give them any excuses on why they couldn’t deliver when needed. NOTE: Banks and Credit Unions customarily will be able to offer longer lock in periods than brokers. Brokers (in contrast) will have more streamlined processes and be able to close quickly.
3) If the interest rates drop, will you reduce my interest rate accordingly? This can be a major “kicker” when trying to decide between 2 lenders that may have equal rates and fees. NOTE: Most mortgage brokers will be able to reduce the rate if lower. Banks and credit unions may not be able to deliver this option but, they do have the power to offer a longer lock in period than most brokers.
Now is the time to apply for your loan, and have the lender lock in your interest rate. Be prepared to fill out a loan application either online or with the loan representative directly over the phone. If online, make sure they have a secure website. Have the lender email you all financial information needed for final approval (to have in writing). Keep all emails/correspondence from your lender just in case it is needed in the future.
REAL WORLD: Have some fun with all that money you saved!
This information is owned www.JaxBestRate.com . Its use cannot be duplicated in any form without the written consent of www.JaxBestrate.com . TM
