Are Mortgage Interest Rates Negotiable With a Bank?

You're applying for a mortgage loan to purchase your dream home, and you want to pay as little in interest as possible. The good news is, you can negotiate with banks and lenders for lower mortgage interest rates. The bad news? It will take time. You will also need a strong credit score and the ability to come up with a larger down payment on your mortgage loan.

Strong Credit

To give yourself the most leverage when negotiating for a lower interest rate, you'll need a strong credit score. Lenders rely heavily on your three-digit credit score to determine how likely you are to default on your home-loan payments. If you have a history of paying your bills on time and if haven't run up a lot of credit-card debt, the odds are good that you'll have a strong credit score. Lenders typically reserve their best interest rates for borrowers with credit scores of 740 or higher on the FICO credit-scoring scale.

Down Payment

You can also increase your negotiating leverage by providing a sizable down payment when applying for a mortgage loan. You can typically get approved for a mortgage loan from a conventional mortgage lender by coming up with a down payment of at least 5 percent of a home's purchase price. But to convince lenders that you're a stronger borrower -- and that you deserve that lower interest rate -- you'll need to come up with a larger down payment, as high as 20 percent of your home's purchase price. That can be pricey. A 20 percent down payment on a $200,000 home comes out to $40,000, for examples. Still, lenders view borrowers with more invested in a home as less likely to default on their future home-loan payments.

Quotes

To start the negotiation process, be sure to call several mortgage lenders and banks to receive a wide variety of quotes. This can take time. You'll need to give these lenders a rough estimate of your gross monthly income, debts and assets. Lenders might also run your credit to determine your three-digit credit score. Once they're armed with this financial information, lenders will be able to give you a quote that includes estimated closing costs and an estimated mortgage-interest rate. Once you have these quotes from several lenders, you can either choose the quote you like best or go back to lenders and play the quotes off of each other until one gives you the rate you want.

Considerations

It's important to not focus solely on interest rates when choosing a mortgage lender. Yes, you want the lowest rate possible. But remember that there are several other costs involved in closing a loan. Financial Web site Bankrate determined that in 2012, it cost consumers an average of $3,754 to close a mortgage loan for $200,000. When negotiating interest rates, make sure to also negotiate for lower closing costs.