Negotiation Tactics for a Mortgage Loan

A lender will have more negotiation tactics that work in their favor than a borrower will have. Lenders have the power because they realize borrowers need them more than they need borrowers. However, borrowers who understand they have many options for loans will have the best chance at exercising their own power of choice in securing the best loan.

Shop Around


The most important thing to do before shopping for a mortgage is shopping around. There are plenty of sources out there willing to compete for your business, including alternative and online lenders. While you may want to work with your existing bank, the bank does not need to know that up front. Letting them believe you will go elsewhere if the deal is not right will make them work harder for your loan.

Know Your Credit


You should know going into the negotiation where you stand. You will be able to use this information to intelligently show why you deserve a better loan; or, you will know if the loan option is the best you can get given your credit record. Knowing your credit also helps you prepare for any objection the lender may have. For example, you may have a missed payment from years ago, but the lender will see it. Be ready to address the issue.

Use Income Statements


Debt is only one side of the equation when it comes to getting a good loan. Any lender will also want to see your income, and this is where you may have some bargaining power even if your credit is not very high. Showing you have consistent income over time lowers the risk of your loan. You can use paychecks, minimum checking account balances or tax schedules to effectively report your income. If you are splitting the mortgage with another person, report both incomes to raise the potential limit on your mortgage.

Adjust Terms


There is more to a loan than just interest rates and loan length. You can use the other terms in the loan to get the monthly payments you are looking for. It is important to concentrate on monthly payments because they will be the ultimate factor in determining whether or not you can afford the home. Even if the size of the loan seems astronomical, if the monthly payment is low enough, you will be able to afford the home. Of course, having payments too low will mean it takes a very long time to build equity in the home. Play around with the length of the loan and other terms to find a good balance.

Get Creative


There are many ways to make a mortgage affordable. For example, a mortgage buydown allows you to pay cash up front to make the monthly payments on your loan for the first few years very low. In some cases, the seller will even make the initial cash payment. Another option could be to opt for a variable rate loan that can only adjust a few percentage points. Capping the amount it can rise to a certain percentage over the national prime rate, for example, can give you the advantage of low payments in the beginning while still providing price security in the long run.