How to Negotiate with a Lender – When to Negotiate for a Mortgage
Nicole’s problems (a true story by the way) stem from several misconceptions on her part. Like most people, she believed there was no possibility of negotiating with the lender. Then, when she was delivered an ugly mortgage that she didn’t want, she attempted to negotiate anyway to get the mortgage broker to change the terms.
By that time it was too late.
The truth is that everything in real estate is up for negotiation, including financing. However, you have to do the negotiations up front, not at the back end. At the beginning, when you first approach a mortgage broker (or direct lender such as a bank), you have the leverage. You can easily walk out and try somewhere else. You hold the high cards.
However, once the mortgage is ready to fund, you are at a disadvantage because you need the loan to close the deal and usually don’t have time to begin searching elsewhere. Now the lender holds the high cards.
Lock Ins
Negotiate all the terms of the mortgage when you first approach the mortgage broker or lender. Then get a lock in that guarantees what you agreed upon. This assures you that you’ll get the loan as agreed when it comes time to close your deal. Sometimes however, in a volatile market, lenders won’t honor their own lock ins. To help reduce problems, get the lock in in writing.
Remember, in real life there is no such thing as an absolutely guar anteed lock in. For example, sometimes interest rates rise dramatically between the time you apply for the mortgage and the time to actually fund it. Perhaps they started at 5 percent and now they’re at 6.5 percent. Your lender gave you a written 30-day lock in at 5 percent. That means that you have 30 days to close in order to get that rate.
You’re ready to close in 30 days and demand the mortgage. The lender smiles and says okay. But there are delays. Your documents get lost in the mail. Suddenly a problem over your credit arises. Before you know it, it’s 31 days. Astonishingly, the documents previously lost suddenly reappear and the credit blemish vanishes. “But,” the lender sadly says, “it’s past your lock-in time, so now the rate is higher.”
The truth is no one, including a lender, wants to lose money. And if a little shuffling of paper or maybe a smudge on a credit report can keep that from happening, a few lenders will seize the opportunity. A reputable lender, of course, will honor a mortgage lock in no matter what. The trouble is, you usually don’t know how reputable your lender is until it’s too late.