There is a logical reason why home purchases are considered as major financial transactions—they are quite expensive. That is why new homebuyers have to wait several years until they become more financially prepared to take the big responsibility. Because home acquisitions are costly, almost all homebuyers opt to pay through home loans. Consumers could approach a bank or a private mortgage provider for a home loan. This is when comparison shopping is most recommended.
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Upon comparing costs and rates, you should make a shortlist of banks where you could possibly get your home loan. This is when you should get into negotiations to be able to obtain a loan with the best rates. Here are ways on how to negotiate mortgage rate with a bank:
- Improve your creditworthiness – Your behavior in using your credit card for making purchases or paying your utility bills is constantly monitored. The information derived from that makes up your credit score. If you do not usually max out your card and you pay all your bills on time, you would have a higher rating. Otherwise, you would incur a low or negative score. At least two months before negotiating for a good mortgage rate, be sure your credit rating is good. If it is not and you think you have been responsible in handling your finances, you could contest the score. Lenders tend to charge higher rates to loan applicants with low scores because they need to factor in the risks they would take in doing business with those borrowers.
- Have a few costs waived – Lenders do not usually disclose it, but in reality, most of the fees they charge in mortgages can be waived or at least lowered. You could negotiate to trim administration, loan processing, documentation, and application fees. Take a closer look at all the items in the list of fees and try to lower each one, if possible, during negotiations. You would be surprised at how much you could possibly save.
- Pay a huge down payment – Home loans are not fully provided to borrowers. All lenders require a down payment, which could be a fraction of the total costs. In the past years, the standard rate of down payment was 20%. But these days, you could opt to take as low as 5%.
Although taking a smaller down payment is instantly attractive, it is not advisable if you are aiming for a more attractive interest rate. Lenders look at down payments as an indication of your financial capacity. The bigger the amount you pay is, the less risky you become in their perception. Thus, you would be offered a more competitive rate. You could opt to pay more than 20% to impress a lender. Of course, doing so would also help you save more in the long run.
It is not advisable to be impulsive and to immediately grab the first product you see. You have to continuously look around to find loans that will be attractive considering your current financial status. Fortunately, there are many options around.
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