How to Negotiate with a Lender
Most people believe that you can’t negotiate with a lender. You take what they have to offer or not. It’s that simple. For example, Nicole was buying her first home, a condo, and needed to secure financing.
The price was $240,000 and she wanted to put no more than 5 per cent down. That meant that she needed a 95 percent loan. She went to a mortgage broker who told her that while he could, indeed, secure a 95 percent mortgage for her, it would cost 1% percent above the current market rate. This was because she had a blemish on her credit record and she couldn’t get a prime loan. Thus, he’d have to go to a subprime lender.
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Prime means the loan meets or conforms to mortgage underwriter standards for sale on the secondary market, usually Fannie Mae or Freddie Mac. These are the least expensive loans. Subprime loans are made by lenders who specialize in borrowers with credit problems, and they charge more for the mortgage.
In addition, the broker said he wanted three points (3 percent of the mortgage) as a Ioan fee plus another $1,000 in origination costs.
And he wanted another $1,035 up front for handling the financing ($1,000 was an advance on the loan fees; the $35 was for a credit report).
Nicole, not knowing any better, agreed. The mortgage broker seemed to take forever to get the loan, but he finally did. But when it came time to sign, Nicole discovered that the loan was an extra 1 percent higher in interest and an extra point higher.
She protested, but the broker pointed out that the market had changed and this was the best he could do. Nicole said she wasn’t satisfied and would go elsewhere. He smiled and replied that she was free to do that. But he had secured financing for her and was entitled to the $1,035 he had originally charged, whether she took the loan or not. Further, to go somewhere else meant having to start the whole financing process over again from the beginning. He wondered aloud if the seller would be willing to wait more weeks for her to secure a mortgage somewhere else.
In the end, she took the loan, paid the extra costs, and got the condo she wanted.
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The Real Estate Settlement Procedures Act (RESPA) requires lenders to give borrowers a preliminary estimate of their costs for a mortgage. Read this statement carefully as it may reveal many of the “garbage fees” the lender may be charging.