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This is how we negotiated a 2.75% mortgage rate (and so can you)

·5 min read
This is how we negotiated a 2.75% mortgage rate (and so can you)
This is how we negotiated a 2.75% mortgage rate (and so can you)

Homebuyers who never thought they’d see mortgage rates as low as 3% can do even better these days. I know because I’m one of them.

In mid-2020, my husband and I negotiated a 2.75% interest rate on a 30-year fixed-rate mortgage for our new home. Since then, I’m not sure if I’ve bragged more about the mortgage deal or the house’s original wood flooring.

About half of homebuyers skip shopping around and settle on the first lender that offers them a mortgage, according to research from mortgage company Freddie Mac. But getting one additional rate quote can save an average of $1,500 over the life of the loan, and gathering five quotes saves an average $3,000, the study found.

And you might save considerably more. We got quotes from five lenders that were as high as 3.625%, and we negotiated the rate down to 2.75% — saving ourselves as much as $156 a month in interest. If we stay in the home for the full 30 years of the loan, the savings will add up to more than $56,000.

Here’s how we negotiated our rock-bottom mortgage rate.

We started with a little research

Ecommerce woman. Young female using computer for online shopping, sitting on the floor and drinking coffee.
Stasique / Shutterstock

By the time we were ready to shop for our loan, we'd already obtained a mortgage preapproval letter and a signed purchase and sale agreement for the house.

But before applying for a mortgage, we wanted to be certain we'd found a good lender. After all, an amazing interest rate won’t help if the lender seems untrustworthy.

We asked for lender recommendations from family, friends and mortgage professionals we know. Then, we checked out industry reviews and sifted through the U.S. Consumer Financial Protection Bureau’s complaint database.

Our goal: find a lender with a great reputation and amazing interest rates.

Professionalism counts, too. One of the loan officers we spoke with trash-talked a competitor and came off as condescending, so we pushed him to the bottom of our list.

We found out why a loan estimate is crucial

Once we had a few options we were comfortable with, we applied for mortgages at five different lenders and asked for loan estimates.

Terminology is important here. Under a 2015 law, a lender is supposed to send you an official "loan estimate" within three days of receiving your mortgage application.

The three-page loan estimate lays out all of the important details, including your interest rate, expected monthly payment, closing costs (the many fees you pay to complete the loan transaction), taxes and any special features, like whether's there's a penalty if you pay off the mortgage early.

In “yes/no” language, the loan estimate also must spell out whether anything on the document can change before closing, so you won't be blindsided by surprises.

When we asked for loan estimates, some lenders actually provided preapproval letters or "closing cost worksheets," which aren’t the same thing. So we had to push for a loan estimate, in some cases.

One obviously wasn’t a loan estimate because it came with a note: "Your actual rate, payment, and costs could be higher. Get an official loan estimate before choosing a loan." Gee, thanks.

We asked lenders to match offers

Lahore/Pakistan April 27 2020: Two ace cards in hands of a poker game winning, selective focus
WhiteLife / Shutterstock

Once we got (real) loan estimates, we compared mortgage rates — they started at 3.625% and were as low as 3% — and closing costs. Those ranged from $6,461 to $10,227.

As you can see, there were pretty big differences in the highs and lows for both closing costs and interest rates, which is why mortgage pros talk so often about shopping around. You stand to save money when you give yourself more options. (Comparison shopping is key when buying your homeowners insurance, too.)

We took the lowest rate offer and emailed it to the other four lenders with a note asking if they could beat the rate and closing costs, and urging them to send an updated loan estimate that day.

Within a few hours, our preferred lender matched the 3% lowest rate and waived one of its closing cost fees.

Some homebuyers have no idea closing costs are negotiable, but the loan estimate helps you here because it notes which services you can shop around for, like title insurance. You also can ask a lender to match a rival's closing costs.

In our case, we were able to save some money by choosing our own closing attorney and asking the lender to waive its loan application fee, often paid at closing.

We had to call on our backup lender

I was happy with the 3% rate, but our homebuying story took a twist when a small property tax matter sank the deal before closing. Our loan officer explained why the company couldn’t fund the loan but said another lender likely could.

You probably won’t encounter the same tax issue we did, but we learned it’s a good idea to have fallbacks when you’re shopping for mortgages.

So, we went back to our No. 2 pick — which offered us not only closing costs in our target range but also a 2.75% interest rate. This lender eventually funded our loan.

Mortgage rates fluctuate every day and even by the hour, so you need to keep checking them in your area. We were lucky rates dropped just before we had to sign with a new lender, because we were able to score an even lower rate than our first-choice lender had offered.

Researching lenders, gathering documents, filling out five mortgage applications and fielding dozens of emails took a lot of time and effort. But we learned a lot — and it helped us avoid overpaying by $56,000.