Negotiating mortgage rate? Amount?
Renter · seattle, WA · Member since 2011 · 59 posts · 2 votes
Negotiating mortgage rate? Amount?
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Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15yJonathan...I think approaching mortgage brokers is a good idea if you intend to hold the property for a long time. The extra expense in finding the right loan product for your specific needs is worth the fee of a good broker IMO. Amerisave.com is a great place to start for any 1-4-unit property. They will give you a point and rate matrix for your loan scenario and allow you to choose the perfect product. The Mortgage Professor also has calculators to tell you the breakeven amount of time to hold to the second decimal place.
For property greater than 4 units it is a whole different ball of wax and the underwriting will be different. Read through the forums....there is a ton of information on this already.
Originally posted by Jonathan Horng:
Im just curious to know how to negotiate these?
You pick the right lender for your loan scenario. Different loans will have different lowest cost lenders. The "nichification" is discussed on The Mortgage Professor's site if you look for it. Amerisave.com will get you close to the floor rate in my experience. If a rate minimization is your goal due to a lengthy hold period you will want to request zero yield spread from the broker too so that they can find you the lowest rate in trade for more up-front fees.
Originally posted by Jonathan Horng:
-will there be a max amount that I can borrow? Will it vary from lender to lender?
This really depends on what your debts currently are. There are front-end and back-end ratios you need to qualify for. 2.5X gross income is generally the number thrown out there for what you can qualify for though. So this would be $250kish for your salary if you are qualifying without a co-borrower. You may be able to get more than that with rates so low right now.
Originally posted by Jonathan Horng:
-Can you negotiate the interest rate? If so, how?
Originally posted by Jonathan Horng:
-What if I change my mind and want to purchase as an investment (6-8 units) will my loan still be valid with a larger amount down?
You are going to have to start over with a commercial loan and the rules all change.
28 Replies
Amount you can borrow is based on your income, but also your debts/monthly obligation.
Your interest rate will be based on your credit(worthiness). You can "buy down" your interest rate.
5+ units is commercial. Different underwriting guidelines, and different terms.
- Renter · seattle, WA · Member since 2011 · 59 posts · 2 votes15y
Hi. thanks for the reply.
What do you mean by 'buy down' your interest?
Shorter borrowing time?Is it a good move to speak with several mortgage brokers?
If so, would you say 2,3 10 different ones?thanks
Lender might offer you, say 5.5% at zero points, or you can pay 1 point to bring it down to 5 3/8%. From there you would need to do a cost analysis and figure out where you would break even/get ahead.
Of course it's a good idea to speak to several brokers. Just like you shouldn't buy the 1st property you see, just like you shouldn't hire the 1st contractor you speak to...
I am not sure that a quad could be treated "owner occupied," even if you live in one of the units. You'd have to ask your lender.
Being owner-occupied is advantageous because the down payment requirements are often lower, as is the cost.
Generally speaking, your monthly debts can not absorb more than 40-45% of your monthly income. It's likely that you would have to qualify without the benefit of any rental income that the other units might generate.
You can always negotiate the rate somewhat, but for the most part, mortgage money is a commodity. That's not to say that you should not shop around; some places try to make more money off each deal than others.
Why are you dealing with mortgage brokers? A mortgage broker is someone who does not lend money directly. Rather, they "broker" the deal between you, the borrower, and the actual lender. Of course, they are paid for that service. A mortgage banker, on the other hand, originates the paper and funds the loan directly. True, the loan is often sold, but you're still working with the actual lender.
In my opinion, mortgage brokers are better suited to situations that don't meet traditional underwriting guidelines. If you have good credit, good income, cash down, etc., you may not need to use a mortgage broker.
Be cautious about making too many formal applications anywhere. This can have a negative impact, albeit a small one, on your credit score.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Paulmade some good points there, it depends on your financial position and circumstances as to whoyou might approach for a loan.
The term "owner occupied" is used to define loans made on single family dwellings which includes 1 to 4 units. A 5 unit building will be a commercial loan.
While the rate will be pretty well fixed in your area, you'll have better luck negoiating loan fees, origination fees, underwriting fees, processing fees, funding fees, etc. You can buy down the rate, asmentioned above, but I rarely suggest that since it's nothing more than paying prepaid interest over the average period of time the loan is expected to be on the books, so to speak and with a commercial loan you will likely be limited to 5 years for any fixed rate anyway.
- Renter · seattle, WA · Member since 2011 · 59 posts · 2 votes15y
thanks for the feedback guys.
My credit is excellent and we've got more than enough for down payment so I will inquire about mortgage bankers instead.
Do I just go to my local bank? I bank with B.of America. Should I go to a smaller one?
thanks
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Jonathan...I think approaching mortgage brokers is a good idea if you intend to hold the property for a long time. The extra expense in finding the right loan product for your specific needs is worth the fee of a good broker IMO. Amerisave.com is a great place to start for any 1-4-unit property. They will give you a point and rate matrix for your loan scenario and allow you to choose the perfect product. The Mortgage Professor also has calculators to tell you the breakeven amount of time to hold to the second decimal place.
For property greater than 4 units it is a whole different ball of wax and the underwriting will be different. Read through the forums....there is a ton of information on this already.
Originally posted by Jonathan Horng:
Im just curious to know how to negotiate these?
You pick the right lender for your loan scenario. Different loans will have different lowest cost lenders. The "nichification" is discussed on The Mortgage Professor's site if you look for it. Amerisave.com will get you close to the floor rate in my experience. If a rate minimization is your goal due to a lengthy hold period you will want to request zero yield spread from the broker too so that they can find you the lowest rate in trade for more up-front fees.Originally posted by Jonathan Horng:
-will there be a max amount that I can borrow? Will it vary from lender to lender?
This really depends on what your debts currently are. There are front-end and back-end ratios you need to qualify for. 2.5X gross income is generally the number thrown out there for what you can qualify for though. So this would be $250kish for your salary if you are qualifying without a co-borrower. You may be able to get more than that with rates so low right now.The best way to "negotiate" is to start with the right lender to begin with for your loan scenario.Originally posted by Jonathan Horng:
-Can you negotiate the interest rate? If so, how?Originally posted by Jonathan Horng:
-What if I change my mind and want to purchase as an investment (6-8 units) will my loan still be valid with a larger amount down?
You are going to have to start over with a commercial loan and the rules all change. - Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Originally posted by Jonathan Horng:
Do I just go to my local bank? I bank with B.of America. Should I go to a smaller one?I would suggest trying to find a larger bank for your first 4 properties that are conforming and working with the smaller regional banks after that. Amerisave.com will likely pipe you to some of the better lenders for resi product right now.
- Real Estate Investor · Long Beach, CA · Member since 2011 · 74 posts · 17 votes15y
Bryan pretty much answered all of your questions and quite well. Just want to chime in on the buying the rate down. If you are currently working with a mortgage broker, look at the latest GFE, you may have already bought the rate down and it is included in your closing costs. That's one of the many reasons it is best to deal with the lender yourself if you have the credit, cash and time.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Using a lender directly certainly does cut out some brokerage costs. The tradeoff is possibly being able to find a better deal for your loan scenario somewhere else. The MBS market drives par rates for conforming loans so you should be able to get the same deal anywhere absent the spread banks use on their rate sheets. The trouble is that there really isn't a good way to monitor this perfectly.
The Mortgage Professor has a table of conforming wholesale interest rates on his home page. That is a good page to monitor to lock on the correct day when you have a loan in play. A good broker will keep you apprised of rates each day in your strike window and will have backup lenders if your bank decides to pull a bait and switch after you are locked in to an appraisal that one lender has to "release" (even though you paid for it) to go with a competitor.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Well none of that is necessairly true. In conventional lending, it depends on the mortgage banker the broker is dealing with. Banks usually have a few they will deal with. Borkers can dozens. Not all mortgage banking operations price the par rate or street rate the same, there are differences depending on their portfolio at the time. For example, rates can be dropped to fill a block of loans that are being prepared to sell in the secondary market. If that loan be closed quickly, it could make the cut.
Brian, can you explain what a "zero yield spread to the broker" means?
Another thing, a broker running an efficient operation can knock the socks off a bank originating a conventional loan. When you walk into a bank on those marblefloors, pass the leather chairs by the receptionist, then the tellers and the bank operations offices, where do you think they earn the money to pay for that overhead. Tellers don't present a real profit center for any bank.
The loan department subsidizes much of the overhead in any bank, that's where the money is made, not renting safe deposit boxes. The bank has to price the loans at rates that are profitable. The broker does not.....pretty simple.
I owned a secondary market brokerage operation for about twenty years and at no time could I not beat the rate of any institutional lender in the area. If a broker is willing to do it, they usually can if they are tied in with major national players in mortgage banking.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Here is a great article on yield spread premiums from The Mortgage Professor:
Here is an article on YSP abuse:
Proposed reform:
And a great article on picking a rate/point optimal combination:
I like to get par on my loans in trade for higher fees because most of the property I buy I intend to hold indefinitely. If you plan to sell at some notional optimal ROE point then paying higher rates in trade for less in fees often makes sense.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
OK, it's usually referred to on the consumer side as a broker's premium. The difference between the street rate (marketed or offered rate and the wholesale par rate).
Seeks they are buzzing terms.
I think you are saying at a potential equilbrium.
Buying down rates are usually not a good deal, unless you need to buy down to qualify for the payment.
Good referrences, thanks Brian.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
There are tools on The Mortgage Professor's site that calculate EXACTLY how long it takes to benefit from buying points and/or increased up front fees.
Zero YSP in trade for higher fees generally pays off in the first 5 or so years on a 30-year, fully-amortizing product. In my refinance or capital outlay decisions I want no longer than a 3-year payback. This ignores the time value of money, but it is a quick and easy decision and the time value doesn't distort the decision much since the time horizon is very short.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
On commercial loans I am seeing up to 10 years fixed as the longest but nothing beyond that.
Those little mortgage devils are counting on the market being much stronger then which will make people who bought low have a bunch of equity to OF COURSE refi into a much higher rate.
There are some owner occupied programs for quads where you live in it.
On the credit score pulling people get confused on this.If you are mortgage shopping the computer generated credit scoring model factors in that people shop the rates.
Generally if you pull multiple times in a 1 to 2 week period you are okay.It's when people continously pull for weeks or months on end and never do anything where it hurts your score.
The computer sees it as something must be wrong if all these applications are made and credit is not given or a loan is made.
Adding my 7 cents on the mortgage broker issue.
Look at it this way. When you walk into Bank of America, you will get rates/fees quoted for Bank of America's programs. When you talk to a broker, you can get the rates/fees quoted for numerous lenders.
Mortgages are much like any other product when it comes to looking at options. When I visit Home Depot, it is to my advantage to see more than just John Deere lawnmowers. On the other hand, if Home Depot only sells John Deere, then they have the incentive to sell me John Deere, whether it's good for me or not.
As Financexaminer stated, I CAN knock the socks off a bank when it comes to pricing - 90% of the time. The other 10% of the time, I can knock maybe one sock off. :-)
In the world of money and investing, nothing is 100%. With mortgage approval, it depends on your situation and application. I have had borrowers turned down flat by Bank of America, yet get a solid approval from me as a Bank of America correspondent - and at a great rate. Weird I know, but it happens. Bank of America will turn down their own depositors when they come in the door for a mortgage loan.
I don't want to get techy on you, but don't rule out a broker right out of the gate.
Have you tried asking for a mortgage referral from friends, family, co-workers, realtor,..?
As with any loan, of course there will be a max you can borrower based on your credit, income and other debts.
If you change the home you want to buy or the amount you want to buy, yes, that could change your approval because after all, you changed the collateral.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
I use brokers for all of my loans because they generally get things done quicker and I like being able to lock jump if someone tries to pull a bait and switch if the rates move in favor of the bank. We keep our loans for a long period of time so an extra .25% is important to us!
- Renter · seattle, WA · Member since 2011 · 59 posts · 2 votes15y
Hi Bryan,
What did you mean when you wrote this? I do not understand what you mean?
Originally posted by Bryan Hancock:
I like being able to lock jump if someone tries to pull a bait and switch if the rates move in favor of the bank. We keep our loans for a long period of time so an extra .25% is important to us!thanks for all the additional info guys. Very useful.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Here are some good articles on lock jumping Jonathan:
Is the Borrower Committed by a Mortgage Lock?
Changing the Loan After You Lock
What you will find is that unscrupulous lenders will "lock" the loan and then do many things to avoid living up to their commitment Jonathan. Once you have paid for an appraisal there really isn't much you can do because that lender has to "release" the appraisal that you paid for to another lender...which they often won't do. Worst yet....rates may have moved in the wrong direction and you are stuck even if you go with another lender. A good mortgage broker from an investor's or borrower's standpoint can stop this nonsense by having multiple lenders willing to do the loan and making sure things are pushed through underwriting so you don't deal with this nonsense.
Hopefully that helps....I can elaborate if the articles above don't prove useful enough.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
When I had lenders that were switching terms of my clients I could suaully replace the loan if we were within 90 days on the docs. Saying that you are had if you already paid for the appraisal is saying you're had for about a hundred bucks. Now, many mortgage bankers accept state approved appraisers and usually can on a case by case basis. That means you can simlpy go back to that appraiser and ask for an update. If the compsale dates are still within the accepted period, the appraiser simply reprints his work changing the date and client information. Now, you have a new apparisal for a new lender.
Many lenders will not take on a borrower who has already applied elsewhere, not that there is anything wrong with it, it's almost a courtsey among lenders to keep bowwors in a pipeline. It also keeps borrowers from hedging one lender against another, locking and floating. But if the application is cancelled you can switch. If the broker is big enough, they can lock you in and he can also allow you to move to the best deal later in the application process.
Having a good broker can much better than using one small or regional bank and much better than a national big boy bank, IMO.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Appraisals run more than $100 in my next of the woods....plus you are already stuck if the rates move north and don't dip again.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
I'm sorry you missunderstood, it's appraisal update of the original apprasial that was made. $100 to $150 is sufficient to get the apparser to change the client name (new lender) and the date in his word prosser, as I mentioned.
I didn't read through every comment above, but something else, trying toget a lower interest rate on a $80,000 loan and maybe using tactics as if it were a $300K loan will just tell that bank or broker to move on to the next borrower.
You can ask once, then ask about buydowns, but going too far may not be beneficial. It's better to hammer away at the fees as I mentioned. It's not like you are the only borrower in town. Just like a car dealer selling units, they will make X dollars off each deal or they won't do the deal....probably have better luck at a car dealer getting a low ball price than at any lender getting a significant chop on the rates.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Thanks for the clarification Bill...that makes sense. I still don't like lenders beating me out of even $100 though ;-)
Originally posted by Bryan Hancock:
Thanks for the clarification Bill...that makes sense. I still don't like lenders beating me out of even $100 though ;-)That fee goes to the appraiser. He/she is the one making the changes to the report and creating a new one.
However, the appraisers we work with will not change anything w/o first speaking to us. Despite the fact that the borrower paid for it upfront (in most cases), the document belongs to the original lender who made the request.
Originally posted by Financexaminer:
......Many lenders will not take on a borrower who has already applied elsewhere, not that there is anything wrong with it, it's almost a courtsey among lenders to keep bowwors in a pipeline. It also keeps borrowers from hedging one lender against another, locking and floating. But if the application is cancelled you can switch. If the broker is big enough, they can lock you in and he can also allow you to move to the best deal later in the application process. .... .
Exactly. My antennae go up when a borrower contacts me who is already deep in process with another lender, especially when he/she makes it clear they have not told the other lender they are leaving. Mortgages are so much work now that I would not quickly jump into a transaction with a borrower who lets me know they are disloyal. They could do the same thing to me.
There has to be a good reason - and a lower rate might not be it. I listen to what they have to say and decide. I have had borrowers who simply misunderstood what their lender told them. I clarified it for them and sent them back.
When borrowers try to jump ship, the other lender finds out and sometimes the borrower ends up going back anyhow. What a big waste of my time that would have been.
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