Negotiating with lenders

[Luke Jacobsma]

I have made an offer on condo and have been pre-approved by a lender. But I want to make sure I am getting the best interest rate so I reached out to 2 other lenders. Can someone level with me and tell me how much wiggle room lenders have for negotiation? For example if they quote me 4.375% interest, can I ask for 3.99% or is that just out of the question? What can I do to get the best rate and lowest monthly payment. Lenders, help me out here with some inside tips.

[George Despotopoulos]

@Luke Jacobsma I can only speak from a private lender's perspective as my experiences are limited to that space. There are others here way more qualified with regards to conventional financing and its regulations/underwriting guidelines. I believe portfolio lenders may be the best ones in terms of being open to working with you since they hold onto their origination. 

With respect to non-bank lenders, the rate is usually not negotiable. Lenders base their rates on their underwriting guidelines and their rate sheet. This is something that is set and usually updated monthly to account for market conditions. If you pre-qualify or are pre-approved for a certain rate, that's usually because taking into consideration your characteristics and qualities as a borrower per their guidelines you fall into that rate bracket or tier. If for example you have a 650 FICO, are looking for a 70% LTV loan, and have 2 years experience and this falls in their tier 3 which shows a 4.5% rate but they then issue you a 3.6% rate because you're going back and forth negotiating, this would be an exception to their guidelines and would need to be documented with an explanation for the exception.

It's not good practice to make exceptions, especially because these lenders usually then sell their loans to investors and investors buy their loans after a review of their guidelines.

[Luke Jacobsma]

George Despotopoulos thank you very much. Been talking to 3 lenders and each one has quotes me slightly different rates and payments. I am curious how they arrived at the figures when I provided each the same financial information. This has been a great learning experience and your info was very helpful.

[Andrew Postell]

@Luke Jacobsma for conventional lending (and FHA/VA/etc) banks do include some cost formula in their rates. It is slight but nearly every bank does it. However, even if a banks built in cost is the exact same as another bank the rates they quote you could still be different. That is because interest rates fluctuate every day and sometimes multiple times a day. So if you go to one bank in the morning and one bank in the afternoon it is possible for the rate to change in that period and have the same bank give you a different rate. There are some banks that will match pricing for other banks. I actually think most banks will do this. So if you like one bank over another but their pricing is higher ask if they will match. They will probably say yes but they will likely want something in writing from their competition to see their costs/rate/etc. Hope this helps!