Negotiation:  The Mortgage Borrowers Best Tool

Remember when you bought your first used car?  Chances are you were young and used a fair bit of negotiation to get the price to where you thought you were getting a good deal.  The years may have went by and you are a bit older now, but now that you are working on buying a home and taking on a sizeable mortgage you should sharpen up your negotiation skills to put them to work to help you save thousands of dollars on your mortgage!

Let's start out with talking about fees - all the processes and paperwork that mortgage lenders like to charge you for.  Document preparation fees, research fees - talking about fees fee.  Each and every one of those fees is negotiable.  After all, it's not like they are using a scribe to write out your mortgage documents -- $300 to prepare a standard mortgage contract is a bit much.  Question every fee and work to negotiate them down.  Let the lender know that you know they aren't the only game in town and make them earn your business.  Even if you knock only $100 off that is $100 more in your pocket for just a few minutes worth of negotiation.  But remember to spend the majority of your time negotiating on the big fees, and not the small ones.  Start with the largest fee on the list - usually the lender/broker fees charged for points - and work your way down.

Now let's talk about the rate you pay on your mortgage.  You generally won't be able to swing one way or another a full percentage point or more, but even a small quarter of a percentage point change can have a real impact on how much you pay over the life of your loan.  The best way to negotiate on rates is to shop around and let each mortgage lender know that you are doing so.  Always shop around with at least three mortgage lenders and be sure to check out the lenders who have setup shop online.  Sometimes the best rate deal may not even be with a lender in your hometown!

Points is another concept you should be familiar with as you negotiate your mortgage.  Your lender is not going to give you points for free - after all, they are the upfront costs that lower your rate.  Another name for points is prepaid interest.  Your best tool here is to make sure you understand that points only have real value if you plan to stay in your home for a length of time and you are not planning to refinance within a few years.  Having said that, if you decide to purchasing points don't be afraid to do some negotiation here - you could save yourself a sizeable chunk of change by asking your lender to work with you in dealing with the points.

The bottom line is that lenders know what profits they want to make on a mortgage loan.  They also know that they aren't the only lender in town and will generally work with you in getting your mortgage setup where both you and they gain a little ground and give up a little ground.  The biggest negotiating tool that you as the buyer have is cash (and a good credit score).  The more cash you can put down as a down payment on your home the better the position you will be in to negotiate with the lender.

As you prepare to get your next mortgage don't be afraid to put some of your energy into negotiation for the best deals out there.  Don't expect to win every battle, but you should be able to lower the costs somewhat by being willing to negotiate with your lender --- just remember, negotiation means that you have to meet the lender in the middle.  You can't have it all!