The One Question Every Buyer Should Ask Their Lender

When I was in the market for a new home in the Denver area earlier this year, I was hopeful the Federal Reserve would cut interest rates by the time my partner and I found our dream house. Unfortunately, that didn’t work out — we locked in at an interest rate just below 7% (6.99%, to be exact), which was more than double the interest rate I was paying on the home I was in the process of selling. 

However, a few things helped soften the blow of buying in a higher-interest-rate environment. For starters, higher rates had likely sidelined a lot of buyers in our market, so our offer was accepted without the stress of a bidding war, and we were even able to negotiate that the roof be fixed on our backyard Accessory Dwelling Unit. 

We also were savvy when it came to rate shopping. Rate shopping when applying for a mortgage can save borrowers 1.5% on their mortgage rates, at least according to a mortgage study released this month from Realtor.com. Doing so could save you as much as $400 per month on a $500,000 home purchase, the study points out. 

And while rate shopping can really make a huge difference in your monthly payments, it’s not the only option. Incentives, which are deals offered by mortgage lenders to help incentivize borrowers to buy their product, are a super overlooked way to save money on your home purchase. In fact, the one question every buyer should ask potential lenders or their mortgage broker is, “What other incentives are you offering?” 

Here’s something that you may not know: Mortgage experts expect rates will drop (but not as dramatically as they did in 2021 when they plunged under 3%). The Mortgage Bankers Association is predicting rates on a 30-year fixed-rate mortgage, which is the most popular loan product, will come down to 5.9% in 2025. 

Since I’d have major FOMO if rates dropped and I had just locked in, we negotiated a free refinance with our broker that we can use so long as it’s at least six months after our close date. This will save us several thousands on closing costs. While refinancing can save you money over the life of the loan, it can be expensive up front, costing 2% to 6% of your loan amount, which shakes out to $10,000 to $30,000 on a $500,000 loan. 

The other thing that we negotiated was a rate buydown that pulled down our rate by 1 percentage point for the first year of our mortgage, and we’re putting the extra money that we would be paying into a high-yield savings account. (There are different structures to rate buydowns, but they’re not always a silver bullet — while your mortgage payment will be lower during the temporary buydown period, the total cost of the loan will be higher as interest on your loan accrues over time.)

So why would lenders be incentivized to sweeten the deal on your loan terms? It comes down to home sale slumps. In July 2024, existing-home sales rose, but by just 1.3% following four straight months of declines, according to the National Association of Realtors, which is not insignificant when you consider that spring and summer are usually busy home-buying months.

I asked experts what other deals buyers might be able to negotiate when it comes to their loan terms. 

The first thing you need to do when you’re rate shopping is to make sure you’re reviewing both the rate and the fees associated with taking out the loan, says Jennifer Beeston, senior vice president of Mortgage Lending at Guaranteed Rate Mortgage. This includes things like lender fees and discount points to buy down the rate.

“Many lenders love to quote low rates but leave out the part that the fees to get that rate are not worth it,” Beeston says. 

There are three common incentives to ask your lender about — or be aware of — when you’re rate shopping. 

Some lenders allow borrowers to lock in their rate, and if the market improves before closing, they can relock at the lower rate at no cost, says Brian Shahwan, a mortgage banker and broker licensed with William Raveis Mortgage part of the Melissa Cohn Group. 

Many borrowers that close in a high-rate environment will want to refinance when the market stabilizes, Shawan says. “Banks understand this and will often roll out programs to reduce the closing costs on the future refinance if the borrower comes back to them,” he says. (In our case, we were able to negotiate a free refinance in the future, so don’t be afraid to ask your lender about this!).

Usually, a rate buydown involves paying an up-front fee, often referred to as “discount points,” to reduce your interest rate, says Brian Quigley, the founder at Beacon Lending. In my rate shopping experience, I found that some lenders (and even some sellers) were willing to offer to cover a temporary rate buydown. We have a 1% buydown that’s saving us about $500 a month in the first year of our new loan.