Reader question: “My husband and I both have great credit. We are both over 800 on the FICO scale. I’m wondering if this will help us when negotiating the interest rate with a lender. Can we negotiate a mortgage rate reduction since we have excellent credit?”
First of all, congratulations on keeping your scores so high. Yes, a score above 800 is considered to be an excellent score these days, as far as mortgage lenders are concerned. It sounds like you’ve been a very responsible borrower in the past. If you are equally strong in other areas (debt ratios, income, etc.), you should have no trouble qualifying for a loan. So let’s move on to the question at hand.
Will Having Excellent Credit Help Me Negotiate a Better Mortgage Rate?
Can you negotiate a better mortgage rate if you have great credit? This partly depends on the initial rate the lenders offers to you. They may just come right out with their best rate, based on your qualifications as a borrower. The loan officer might think, “These are strong borrowers we’d be lucky to have, so I’ll present my best and lowest offer to prevent them from going elsewhere.” If this happens, you might not be able to negotiate a rate reduction regardless of your great credit score (though you might be able to buy it down further using discount points, as explained below.)
Another scenario is that lender offers you only an average rate, based on current trends. If your other qualifications are as strong as your credit score, you should qualify for a better-than-average interest rate. So in this scenario, you should definitely try to negotiate it down. You can also get offers from more than one lender and go with the lowest APR, which is the rate plus other costs. (Tip: Experts say you should compare offers by using the mortgage APR, and not just the rate by itself.)
So you have to go into this process with some knowledge of current mortgage rates. For instance, what is the average interest rate assigned to a 30-year fixed home loan, for this week and last week? This is the kind of information you need to know when you start shopping around, and when trying to negotiate a mortgage rate reduction with a lender. You can get this information from many websites, including Bankrate.com. And do a Google search for “Freddie Mac weekly market survey,” while you’re at it.
Armed with this knowledge, you’ll know whether the lender is offering you a rate that is average, below average, or above average. If you truly have great credit, and you are strong in the other areas mentioned earlier, you should be able to negotiate your rate into the “below average” range. If not, try another lender.
As mentioned earlier, you can also use discount points to “buy down” the interest rate assigned to your loan. There are pros and cons to this. You have to pay more up front, at closing. But you will pay less interest over time due to the lower rate. This strategy works best for a long-term stay, compared to a shorter on. It’s worth some additional research.
Read: How to calculate discount points
So yes, everything is negotiable in the mortgage world. If you have a great credit score, you should be able to negotiate a mortgage rate reduction to some degree. Unless, of course, the lender comes at you with their best and lowest offer right from the start. You might already be at the “floor” in that scenario. You should consider using points too, if lower monthly payments are your primary concern. Good luck!
Brandon Cornett
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author