If you are falling behind on your bills because of too many debts and too little income, negotiating with your lender may be your ticket out. Getting a lower interest rate and better mortgage terms could be just what you need to manage your finances more successfully. Although you may need some help to get out of debt, you will want to choose a solution that’s right for you. Otherwise, you are likely to find yourself right back in the same position again.
Request your FICO score before talking to any lenders (see Resources). If you have a credit score of at least 720, you will have the most room to negotiate a lower mortgage rate. A high credit score shows lenders that you are a safe lending risk.
Research the current interest rates and mortgage terms for the type of mortgage you are seeking. You can find current rates on the Internet and in the financial section of newspapers. Copy down the numbers so that you have thmn handy when speaking to mortgage lenders. Ask a lender to meet the lowest rates you find, especially if you have a healthy credit history.
Get quotes from at least four different lenders. Review the interest rates and terms offered by each. Don’t be afraid to ask a lender with whom you prefer to deal to match the lower rate and better terms that another financial institution offers you.
Show a front-end ratio of no more than 28 percent, according to Bankrate. Front-end ratio is the monthly percentage of your annual gross income that you use to make your mortgage payments and pay your homeowner's insurance and property taxes. If you need to use more than 28 percent of your income to pay for these housing expenses, a mortgage lender may consider you a higher risk when it comes to your ability to repay the loan.
Try to negotiate better terms with a lender that you like. Remember that many loan officers receive commissions on the loans they service. This means they receive the best commissions when borrowers pay the highest rates. Let the loan officer know that you want to sign for the loan but only if you are offered an affordable rate.
Pay as many points as you can afford in order to get a lower interest rate. When you pay points you are actually prepaying some of the loan principal and that can lower your monthly payment. While coughing up a larger down payment reduces the amount of money you need to borrow, paying points lowers the interest rate you pay over the life of the loan. However, this strategy only pays off in the long term.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.