Interest rates are high and housing supply is low, making this a tough housing market but one that’s not impossible to navigate, experts say.
There are still many ways to maximize a budget if you’re a buyer or ensure you earn top dollar and trim your costs if you’re a seller. Strategies include knowing what fees might be negotiable, what home features to invest in, what kind of lender to look for, what types of mortgages are available and what tax benefits there are to selling and buying another home, experts say.
Can I still get a 3% mortgage rate?
Yes, if a seller has a so-called assumable mortgage at a lower rate, you can take it over.
Assumable mortgages are generally those insured by the Federal Housing Administration (FHA) or backed by the Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA).
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About 12 million, or 23% of, active mortgages are assumable, according to data and technology firm Intercontinental Exchange. Of those, 7.2 million, or 14%, are assumable at interest rates below 4%, which can save buyers thousands of dollars and generate more bids for sellers. Current loan rates hover around 6-7%.
On a $400,000 loan with a 7% interest rate, the monthly principal and interest payment comes out to about $2,660. With a 3% rate, that payment drops to $1,686. That’s nearly a thousand-dollar difference in monthly housing costs.
These deals also don’t require an appraisal, which can save buyers hundreds of dollars.
What are drawbacks of assumable mortgages?
- Assumable mortgages aren’t easy to find. Only some listings advertise them, said Chris Birk, vice president of mortgage insight at Veterans United Home Loans.
If you’re looking in Arizona, Georgia, Colorado, Florida, Illinois and Texas, you can check assumable listings site Roam, which launched last September.
You might have to come up with a hefty down payment. For example, someone has $350,000 remaining on their loan, and they’re selling their home for $450,000. The person assuming the loan would need to pay the homeowner $100,000 at closing for an assumption to make sense. That’s significant for most people, experts note.
Roam also can help buyers secure secondary financing to cover the down payment, typically the difference between the sale price and the mortgage in these deals.
- These deals can be complicated to close. Roam promises sellers a 45-day close, or it’ll pay the seller’s mortgage until closing, said founder and chief executive Raunaq Singh.
- For veterans, their entitlements to purchase the home will remain tied up there until the loan is fully repaid, Birk said. An entitlement is how much the Department of Veterans Affairs will guarantee to repay lenders, typically $36,000 or 25% of the loan amount, in case the borrower defaults and helps determine how much a veteran can borrow before needing a down payment. That means if a veteran must buy a replacement home, entitlements will be curtailed for that purchase because of what’s tied up in the first property, Birk said. If the mortgage goes into foreclosure or short sale after assumption, veterans will lose all their entitlements.
What fees are negotiable in buying and selling a home?
Fees that may be negotiable with a lender, include:
- Application fees
- Origination fees covering the costs of underwriting your loan, which can include processing your loan application, preparing loan documents and reviewing your credit profile
- Fees associated with rate locks that guarantee your rate during the loan process or the purchase of points to lower your interest rate
- Real estate agent commissions. If you’re a seller and don’t want to negotiate your own agent’s commissions, ListWise will connect you with agents willing to work under an incentive-based commission, instead of the current flat percentage structure. Basically, agents agree with you on a minimum price they think they can get for your home. If the sale price exceeds that, agents get paid 0.75% of the final price plus the incentive pay of 20% of each dollar over the agreed price. This approach “focuses attention on what is most important, getting the highest price for your home,” said founder Nic Johnson.
- State and local government recording fees, usually paid for by either the buyer or seller
To get the best rates, comparison shop lenders, experts say.
“Get estimates and see the variance,” said Darren Tooley, senior loan officer at Cornerstone Financial Services. “That gives you some knowledge and basis to say, ‘I’ve got quotes from other lenders and will you work with me?’”
What kind of lender should I hire?
Find a lender who “has a variety of loan products and can coach you to maximize financing with credit improvement, cheaper PMI (private mortgage…
Read More: Tips to navigate the tough housing market to get what you want