I often try to find positive aspects in bad situations.
The latest problem facing potential homebuyers is the return to 7% mortgage rates, up from about 6% just a month ago.
Although there is no clear negative relationship between mortgage rates and home prices, as one rises and the other falls, you can still make this argument to a home seller.
If you’re currently in the market to buy a home, you can use this big move in raising mortgage rates to your advantage.
Simply put, homebuyers may argue that it has become more expensive to purchase a home, and therefore ask for a discount.
Buy a house? Ask for a discount in light of rising mortgage rates
A month ago, you could get a 30-year fixed mortgage at around 6% interest.
Today, potential homebuyers are looking at a rate closer to 7%. Or higher!
And it could get worse before it gets better given all the uncertainty going on right now.
Instead of worrying about a high monthly payment, you can use this to your advantage and make a low-cost offer.
Home sellers will be keenly aware that mortgage rates have risen and housing affordability has deteriorated.
As such, you can lower your offer price and hope the seller accepts it.
When you make an offer, make sure your agent communicates this to their agent so that the lower offer price has a better chance of acceptance.
Although it’s not guaranteed to work, you at least have a fairly strong argument to make.
Especially with fewer other bidders as a result. If there is less competition, the lower bid has a better chance of winning.
How far down can you go?
Although this is certainly a smart strategy to use right now, there is no guarantee that it will work.
Ultimately, you need to look at the list price and decide what a reasonable offer price is considering rates that are about one percent higher than they were before.
You probably won’t get a one-to-one deal where your monthly payments stay exactly the same.
So, if your monthly principal and interest payment are $2,500 at 6%, you probably won’t be able to negotiate a lower rate as the rate and interest payment remain at $2,500 at 7%.
However, you may be able to meet the seller somewhere in the middle depending on how desperate they are.
Remember, if they have fewer bidders, your offer will be more attractive, even if it is lower.
You can do some math with your agent, or run a mortgage calculator, to determine this number. Maybe you start with something where your monthly payment looks the same as it did a month ago.
Then hopefully they’ll meet you somewhere close by.
Play with the numbers and see what makes sense without getting into a situation where your offer is seen as “insulting.”
You may be able to save a few dollars and offset the significant price increase.
Alternatively, you can ask the seller for concessions to buy a temporary interest rate to lock in a lower rate for the time being.
The purchase price is always low, unlike prices
The beauty of getting a lower purchase price is that it is permanent, unlike mortgage rates that can change daily.
This comes with the advantage of a lower down payment, and possibly lower property taxes and homeowners insurance.
An added bonus is that when mortgage rates drop, you can ideally refinance to that lower rate.
In the end, you may end up with a lower purchase price and a lower mortgage rate.
For example, you might be able to list the sales price of a home that is $25,000 or $50,000 lower.
Over time, you’ll still have a mortgage rate that starts in five years if all goes according to plan.
In other words, you get the best of both worlds.
Enjoy less competition for homebuyers while prices rise
But wait, there’s more. As mentioned earlier, you may face less competition when mortgage rates are high.
Every time interest rates rise by 1%, millions of potential buyers no longer qualify for a mortgage.
If you still do, it may make it easier to find a home while enjoying a better range of options.
That’s why I recently decided to use a higher mortgage interest rate when home shopping so you can stay in the race, even if rates fluctuate.
However, I don’t buy into trying to time the market. So this is not a buy now and refinance later strategy.
It’s just a potential money-saving move if you’re buying a home anyway. You may also try to get a discount if financial circumstances worsen.
It makes sense for home sellers to understand this discount and be more willing to extend it.
While you’re doing this, you can even ask your real estate agent for a credit to offset your closing costs.
Also be strategic about the type of mortgage you get. If you think you might refinance sooner rather than later, try not to pay too much of your money at closing.
Instead, consider getting a lender credit that will cover most or all of your closing costs.
This way, you won’t leave anything on the table if you only keep your loan for six months or a year.
The main downside to paying deductible points is that it often takes a few years to break even.
Meaning, if you don’t keep the loan for 24 months or more, you’ll never see the interest.
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