I often try to find silver linings in bad situations.
The latest issue facing homebuyers is the return to mortgage rates of 7%, up from around 6% one month ago.
While there is no clear, negative correlation between mortgage rates and home prices, where some go up some go down, you can still make that argument to a real estate agent.
If you are currently in the market to buy a home, you can use this great loan step to your advantage.
Simply put, home buyers can make the argument that it has become too expensive to buy a home and therefore ask for a discount.
Buying a Home? Ask for a Discount in Light of High Mortgage Rates
Last month, you could get a 30-year fixed mortgage for about 6%.
Today, prospective home buyers are looking at a rate closer to 7%. Or more!
And it’s likely to get worse before it gets better given all the uncertainty that’s swirling around right now.
Instead of worrying about a high monthly payment, you can use this to your advantage and make a lowball donation.
Realtors will be well aware that mortgage rates have risen, and that housing availability has worsened.
Therefore, you can lower your offer price and hope that the seller will go along with it.
When making an offer, be sure to discuss this with your agent so that your lower offer has a better chance of being accepted.
While it’s not guaranteed to work, at least you have a strong argument to make.
Especially with fewer other buyers as a result. If there is less competition, the lower offer has a better chance of winning.
How Low Can You Go?
While this is a smart strategy to use right now, there is no guarantee that it will work.
Finally, you need to look at the list price and decide if the price is reasonable considering the prices are about one percent higher than before.
Chances are you won’t find a single deal where your monthly payments stay exactly the same.
So if the principal and monthly interest payment was $2,500 at 6%, you probably won’t be able to negotiate a lower price when the P&I remains at $2,500 at 7%.
However, you may be able to meet somewhere in the middle with the seller depending on how ambitious they are.
Remember, if they have fewer bidders, your offer will be more attractive, even if it is low.
You can do the math with your agent, or fire up a mortgage calculator, to determine that number. Maybe start with something where your monthly payment looks like it did last month.
Then hope they meet you somewhere around that.
Think about the numbers and see what makes sense without getting into a situation where your offer is seen as “insult”.
You may be able to save a few bucks and mitigate a large rate hike.
Alternatively, you may request seller approvals for a temporary price purchase to secure a lower price for the time being.
Lowest Purchase Price Lasts Forever, Unlike Ratings
The advantage of getting a low purchase price is that it is permanent, unlike mortgage rates that can change daily.
This comes with the benefit of a lower down payment, as well as potentially lower property taxes and homeowners insurance.
An added bonus is that if and when mortgage rates go down, you can afford that lower rate.
In the end, you might get a lower purchase price AND a lower loan rate to get you started.
For example, you may be able to get a home sale price of $25,000 or $50,000 less.
And in the long run, keep holding that mortgage rate starting at 5s if all goes according to plan.
In other words, you can get the best of both worlds.
Enjoy Competition for Small Home Buyers While Prices Go Up
But wait, there’s more. As noted, you may face less competition while mortgage rates are higher.
Every time rates go up by 1%, millions of potential buyers still qualify for a loan.
If you still do, this can make it easier to find a home while enjoying the best options.
That’s why I recently argued for a higher mortgage rate when buying a home to keep you going, even if prices fluctuate.
That being said, I don’t buy into trying to time the market. So this is not a buy now and reinvest later strategy.
It’s a move that could save you money if you’re buying a home. You can also try to get a discount if financial conditions worsen.
And logically, real estate agents should understand and be more willing to extend that discount.
While you’re at it, you can ask your real estate agent for a loan to cover closing costs.
And be strategic about the type of loan you get. If you think you’ll be making money again sooner rather than later, try not to pay too much at closing.
Instead, consider a lender’s line of credit that covers most or all of your closing costs.
That way you don’t leave anything on the table as long as you keep your loan for six months or a year.
The downside to paying for discount points is that it often takes a few years for them to last.
Which means if you don’t keep the loan for 24 months or more, you will never see the interest.
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