4 practical tips for negotiating your mortgage

Purchasing a home with the help of a mortgage is one of the most expensive financial transactions you can undertake. Given both the costs and commitment that come with signing a mortgage, it makes sense to negotiate the best possible deal with your lender, but the sheer complexity of these loans makes them difficult for most people to know where to start.

It's easy to fixate on finding the lowest possible mortgage rate. But lower rates can come with extra fees which increase the closing costs, meaning you need to strike a difficult balance between the two. "It's really hard for consumers to shop correctly," says Jennifer Beeston, mortgage educator and senior vice president at Guarantee Rate.

To help you better understand how to negotiate the best deal on your mortgage, CNBC select talked with two mortgage experts to get their advice on what matters when shopping for a mortgage.

"What can put the consumer in a stronger position to negotiate? It's knowledge," Beeston says. "It's always going to be knowledge."

When preparing to shop for a mortgage, educate yourself on the current mortgage rates. The averages may not apply to your exact situation, but they'll give you a good idea of what to expect. It's also important to know what fees the lender can control and how your personal finances determine what rates and types of mortgages you qualify for.

1. Talk to multiple lenders

The number one action you can take to ensure you're getting the best deal on your mortgage is to get quotes from more than one mortgage lender. This helps you weed out lenders that would otherwise overcharge you.

"If your lender says 'if you find a better deal, bring it back and I'll match it,' just dump that lender now," Beeston says. "There are honest lenders that offer you their lowest upfront and that's really what you want. You don't want someone where you have to play carnival tricks in order to get a decent deal."

As you're shopping for a mortgage, it's important to understand that rates constantly fluctuate. Beeston recommends comparing lenders on the same day, ideally within a two-hour window. And unless you've submitted a full application and the lender has locked your rate, then any quote you receive is an estimate and can change.

In addition to talking with multiple lenders, you may also want to consider a variety of loan types and fee structures. Gordon Miller, president of North Carolina-based Miller Lending Group, suggests gathering a combination of different quote types: One with no closing costs, one with closing costs but no discount points and one with a buydown. "At least look at the three different scenarios," he says.

Some lenders, like Ally Bank, don't charge origination fees. And other lenders have a wider variety of loan programs to choose from. PNC Bank offers conventional loans, FHA loans, VA loans, USDA loans, HELOCs and more.

2. Watch out for hidden discount points and fees

The interest rate is only one part of the equation when you're negotiating with a lender. The fees you pay are just as important. Beeston advises you ask to about the lender fees, the lender points and the rate. "If you're missing any of those items, you are not getting a real quote," she says.

There's a tradeoff between a mortgage's fees and interest rate. You can pay upfront fees known as discount points in exchange for a lower interest rate. "Make sure you're asking the lenders if what they're quoting includes discount points," Beeston says. If you only ask about the rate, you may end up paying extra fees for that low rate without even realizing it.

3. Know which closing costs are set by the lender

A big hurdle to buying a home or refinancing your existing home loan is the upfront costs, known as closing costs. As you're looking for the lender that offers the best combination of rate and closing costs, only compare fees the lender can change. Ultimately, the only closing costs lenders control are lender fees, points and the rate.

Figuring out the true closing costs of a mortgage can be tricky. A common mistake, according to Miller, is choosing a mortgage where the estimated closing costs look lower because the escrow fees were underestimated. Escrow fees are one part of the total closing costs and include charges that aren't set by the lender like property taxes and homeowners insurance. If a lender underestimates these costs the offer will look cheaper but may not be at the end of the day. "They just gave you the wrong escrow number, that'll be corrected at closing," Miller says.

Getting at least one quote from a local lender is a good idea because they may have a better idea of how to estimate property taxes and homeowners insurance.

4. Be the best borrower you can be

One of the best ways to strengthen your negotiating position when applying for a mortgage is to improve your personal finances.

As part of your homebuying plans, you'll want to focus on raising your credit score and increasing your savings. A higher credit score helps you qualify for a lower mortgage rate, and with more money you can make a bigger down payment. By paying more upfront you can avoid private mortgage insurance (PMI) and may qualify for a lower rate.

Plus, as your creditworthiness improves, you're more likely to qualify for a wider range of loan programs. Having options allows you to pick and choose the best loan type for your situation, rather than being bottlenecked into a mortgage designed for borrowers with poor credit.

A mortgage is a complicated financial tool. But by focusing on the parts of it that are open to negotiation, you'll help ensure you aren't overpaying for your home loan.

Compare loan offers from multiple lenders to see what rate and fees you qualify for, and be sure you're comparing apples to apples. Some of the fees included in a quote are estimated and won't necessarily be fees that are set by the lender.

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