In the mortgage business loan profits and closing costs are included in the front of the loan or in the back of the loan. The front of the loan is listed in broad-sight on the closing statement (HUD) in the form of closing costs. If you have a "front loaded" loan you should be sitting on a sweet rate.
The back of the loan is where lender profits are a bit sketchy, meaning you really don't know how much profit they are making, When a lender makes his money on the "back" this means he is selling the interest rate at a higher rate than he paid for it. This makes it very hard to judge how good of a deal you really have on your closing costs.
Due to the scope of this tutorial we will not cover advanced negotiating skills, if you want details on how to negotiate profit take this tutorial. Other than that here are some tips and tricks that may help you get a better deal on your next mortgage.
- Work both sides - We know that lenders make their money by raising the rates or raising the fees. So, let's get them to quote us both ways, this works great if you are shopping multiple lenders. Ask the loan officer for a GFE that shows the very lowest interest rate he can give you (without paying points) and a GFE showing a low or no closing cost loan. The difference between the two rates is how much room he has to play with the rate.
- Know when to negotiate - Asking a lender "what's your best rate" 30 seconds into the phone call is not a good negotiating tactic, in fact it solicits a lie. Relax, the time to negotiate is AFTER he quotes you and right before he sets up the closing. These are the times that loan officers are most vulnerable. When he initially gives you a quote he assumes that you have spoken with other lenders so he is more apt to cut the price.
Next, wait until you are approved and he calls you to schedule the closing, this is where he is the most vulnerable. He has done all the work getting your loan approved and the last thing he wants is to have you not close it. This is a great time to "nibble" and get a little more shaved of the closing cost or rate. Just be careful, don't ask him for an outrageous discount he just may call your bluff!
Make it tax deductible! - Did you know you cannot deduct closing cost because it isn't classified as interest. However, if you have the lender take all of your closing costs into the discount points line item on the GFE you can deduct them. The discount is classified as interest by the IRS and you can then write off all of your closing costs!
- Ask him to include the appraisal in the closing costs - Most lenders will not do this but some will and it never hurts to ask. Basically what you are asking is for them order the appraisal and include his fee in the closing costs. The advantage here is if the loan dies or the numbers change and you don't want to close, you haven't had to pay for an appraisal.
- Compare lenders - This really does help, pick a couple of lenders you trust and get get quotes from both of them. Don't worry about your credit score either, the bureaus changed the rule that "dings" your credit for mortgages a couple of years ago. Just make sure you do all of your shopping within a week or so.
I hope these tips help you get your best deal and this tutorial was helpful, happy shopping!
Aubrey
