How to negotiate a home loan deal like an expert
For most people it’s the biggest purchase they will ever make, and with that comes the biggest debt they will ever incur. Buying a home is a monumental decision whether you’re a family, childless couple or single, and one wrong move could put you under considerable financial stress for many years to come. There are so many steps along the way that could prove to be your downfall, and given you’re probably not an expert in any of these areas, you really need to safeguard yourself as much as possible.
- Does the home tick all of the boxes for what you need to live comfortably?
- Are there any structural issues that will cost me a lot of money in the long run?
- Is the home overpriced or am I getting a great deal?
- How do you win an auction without paying over the odds?
- Is the interest rate I’ve secured the best available to me?
These are just a few of the questions you’ll have to ask yourself as you decide if the home you’re interested in is really worth the financial commitment you’re about to make. Some of these decisions will be down to you and how you feel, while for other decisions you’ll need the advice and assistance of professionals in their particular area of expertise, such as a mortgage broker or building inspector. But arguably the biggest decision you’ll have to make is the loan offer you accept. Getting the best deal given your particular set of circumstances will go a long way to determining whether you live a life of financial comfort, or if you’re constantly worrying about how you’ll make the next loan repayment.
To help you get the best deal, you’ll need to set yourself up to be as attractive as possible to home loan providers, and then be persuasive enough to strike a great deal with a highly skilled employee from your financial institution of choice. To give yourself the best chance of success, here are six ways to negotiate the best home loan deal you can.
Analyse your current financial situation first
It’s vital that you fully understand and appreciate your current set of circumstances, because that way you will understand how you will be seen in the eyes of financial institutions who look at your home loan application. The first step is to get a copy of your credit score, which are freely available online from any number of companies. The better your score, the lower the risk you will be to a bank and the better chance you’ll have of negotiating a great interest rate. Conversely, the poorer your score, the less power you will have in negotiations and the more interest you will have to pay. If you have a bad credit rating, the best way to repair the issue is to accept a loan with a higher interest rate, make your repayments on time and in full for 12 months, then attempt to renegotiate with your bank. If they aren’t willing to play ball, there will be other home loan providers who may be willing to refinance your loan with them.
Are you in long term employment? If you have a history of stable employment, home loan lenders will look at you as someone who has a regular paycheck coming in every month, and will continue to do so for the foreseeable future. Conversely, if you have a history of regularly changing jobs, you could be seen as a risky investment, and the interest rate offered will be higher. If this is you, you may want to delay your home buying until you’ve been in the same job for at least six months. During that time make dummy home loan repayments into a separate account. This will show any home loan provider that you are in secure employment, and are able to make home loan repayments on time, every time.
Work out how much you can comfortably borrow
This part also requires some serious introspection. Create a monthly budget for the previous three months and determine how much disposable income you have at the end of each month. This will reveal two very important pieces of information that will shape your home buying decision.
- It will give you a good idea of how much you can spend on comfortably repaying a home loan, plus any additional costs such as annual taxes, insurance and repairs.
- You may be able to identify areas of money wastage that you can wipe out. This could add to the amount you’ve got to spend on home loan repayments each month.
Once you know how much money you’ve got for home loan repayments, you’ll have a clearer picture of the kind of house you want to buy in the neighbourhood you want to live in. You may want to buy a five-bedroom home in a neighbourhood with the best schools and water views, but your budget will dictate that you may have to set your sights a little lower on this occasion.
Research the home loan market
A quick online search for ‘home loan comparison websites’ will provide you with plenty of relevant information that will be vital when it comes to speaking with a home loan lender. You’ll get a great idea of the interest rates, both advertised and comparison, that a wide variety of lenders are offering, plus the terms and conditions that come with it. Make a list of the top five you feel best suit your needs, and rank them in order from your first choice to your last. These will be the providers you call to negotiate your home loan.
Now that you have an idea of the interest rates that could be available to you, and the amount of money you have to service a home loan, enter those figures into an online home loan repayment calculator. This will provide you with a rough guide to how much money you may be able to borrow. As has already been mentioned, this will add a dose of reality to the kind of home you can afford versus the home and neighbourhood you want.
Time to make the call
It’s always better to have your finance organised before you start bidding at an auction, or making an offer on a private sale. But before picking up the phone and dialling the first number on your list of preferred home loan providers, you need to have your spending parameters, and the terms of a home loan you’re willing to accept, clearly defined. That means not going above your monthly repayment and total borrowing threshold, or the interest rate you think is fair given your history and circumstances. So many people let emotion get in the way because they “have to buy the home they’ve got their heart set on”, but this can lead to years of financial stress that will heavily outweigh any joy you have from buying a home.
Negotiations should be conducted in an orderly fashion. Both parties want a positive outcome; you want a favourable home loan, and the lender wants your business. So it makes sense that both parties treat each other with respect. The problem is emotion sometimes boils over when you don’t think you’re being treated fairly, and this can quickly manifest into a heated argument where things are said that you may regret. If this happens don’t be surprised if the conversation comes to a quick conclusion, and you will have burned a bridge that may have come in handy down the track.
Instead, if negotiations have stalled and you can’t get the lender to fall within your strict spending guidelines, thank them for their time, hang up and move onto the next number on your list. If this pattern repeats itself for the other numbers on your list, you may have to re-evaluate where you think you stand in the eyes of home loan lenders. However, you may have five offers on the table, and because you’ve been respectful to each of them, you can call them back and attempt to play them off against each other. A 0.25% reduction in one of the offers may be all it takes to get the offer you want and into your dream home sooner rather than later.
Read the fine print before signing anything
Yes, it’s probably the most boring part of the process, but reading the contract offer from start to finish may save you tens of thousands of dollars over the life of the loan. See if there are any hidden fees and charges you haven’t been told about, and that the numbers add up. Sometimes errors are made on contracts unknowingly, we’re all human and mistakes after all, but once contracts are signed it’s not so easy for them to be changed. If you have any questions at all, write them down and call the lender before signing anything. Get clarity and make sure you completely understand all facets of the contract. When you’re completely satisfied that you’ve got a deal that suits you, sign on the dotted line and submit the contract.
Use a mortgage broker to get the deal done
For a lot of people, the idea of trying to negotiate a home loan with someone who is an expert in their field can fill them with dread, even with the advice in this article. But that doesn’t mean you need to simply accept whatever a home loan provider offers and live with it. A reputable mortgage broker is an expert at finding the best home loan rates on the market for their customers, and doing all of the leg work to get the deal over the line. This takes a lot of the pressure off you, so the process from start to finish can be much more enjoyable.
A good mortgage broker will have a detailed knowledge of the home loan market, and excellent relationships with a large number of financial institutions. Often mortgage brokers will be able to source home loan deals that aren’t available to the general public, meaning you’ll save more money than you may have otherwise been able to if you tried to negotiate a home loan yourself. Over the life of the loan, this could save you tens of thousands of dollars, and wipe several years from the term. And the best part is that reputable mortgage brokers won’t charge you a cent for their services. They are paid an upfront fee from the lender, and a trailing commission for as long as you keep your loan with the financial institution they negotiate a deal with on your behalf.
It’s decision time
Whether you choose to negotiate a home loan yourself, or engage the services of a reputable mortgage broker to do your negotiating for you, it’s important that you are always comfortable with the home loan on offer. No matter what happens, always ensure you are comfortably able to make your monthly home loan repayments. To borrow beyond your means is a recipe for financial disaster that not only impacts on you, but also has the potential to have a negative impact on everyone around you. So be strong, be smart and enjoy your new home safe in the knowledge that you’ll be able to easily service the loan for the foreseeable future.