Home Buyers: Use High Mortgage Rates as an Excuse to Get a Lower Price Loaner

I often try to find glimmers of hope in bad situations.

The latest issue facing potential buyers is the return to mortgage rates of 7%, down from around 6% just a month ago.

While there is no clear negative correlation between mortgage rates and home prices, as one goes up and the other goes down, you can still make that argument to a home seller. House.

If you’re currently in the market to purchase a home, you can use this significant rise in mortgage rates to your advantage.

Simply put, home buyers can argue that it has become more expensive to buy a home and therefore ask for a discount.

Buy a house? Ask for a discount given higher mortgage rates

A month ago, you could get a 30-year fixed mortgage for around 6%.

Today, potential buyers are looking at a rate closer to 7%. Or higher!

And it’s possible that the situation will get worse before it gets better, given all the uncertainty currently reigning.

Instead of worrying about the higher monthly payment, you can use it to your advantage and make a modest offer.

Home sellers are well aware that mortgage rates have increased and housing affordability has deteriorated.

As such, you can lower your offer price and hope the seller will accept it.

When you make an offer, make sure your agent communicates this to their agent so that your lower offer price has a better chance of being accepted.

Even if it’s not guaranteed to work, at least you have a pretty solid argument to make.

Especially with fewer other bidders as a result. If there is less competition, a lower bid has a better chance of winning.

How low can you go?

While this is certainly a wise strategy to use at this time, there is no guarantee that it will work.

Ultimately, you need to look at the list price and determine what a reasonable offer price is considering rates are about a percent higher than before.

Chances are you won’t get an individual deal where your monthly payments stay exactly the same.

So if the monthly principal and interest payment was $2,500 at 6%, you probably won’t be able to negotiate a lower price if the P&I remains at $2,500 at 7%.

However, you may be able to meet the seller somewhere in between, depending on how desperate they are.

Remember, if they have fewer bidders, your offer will be much more attractive, even if it is lower.

You can do some calculations with your agent or run a mortgage calculator to determine this number. Maybe start with something where your monthly payment looks like it did a month ago.

Then I hope they meet you somewhere close to that.

Change the numbers and see what makes sense without ending up in a situation where your offer is considered “insulting.”

You may be able to save a few dollars and offset the steep increase in rates.

You can also request concessions from the seller for a temporary rate buyout to get a lower rate for the time being.

A lower purchase price is permanent, unlike tariffs

The advantage of getting a lower purchase price is that it is permanent, unlike mortgage rates which can change daily.

This has the benefit of a lower down payment and potentially lower property taxes and home insurance.

The added benefit is that if and when mortgage rates drop, you can ideally refinance at that lower rate.

Ultimately, you could end up with a lower purchase price AND a lower mortgage rate to boot.

For example, you may be able to get a home sale price $25,000 or $50,000 less.

And over time, always get that mortgage rate that starts within 5 years if everything goes as planned.

In other words, you could get the best of both worlds.

Enjoy Less Competition for Home Buyers as Rates Climb

But wait, there’s more. As noted, you may face less competition when mortgage rates are high.

For every 1% increase in rates, millions of potential buyers no longer qualify for a mortgage.

If this is still the case, it can make it easier to find a place to live while still having a better range of options.

That’s why I’ve also recently advocated for a higher mortgage rate when buying a home in order to stay in the game, even if rates are volatile.

That being said, I don’t buy into the idea of ​​trying to time the market. So it’s not a buy now, refinance later strategy.

This is just a potential money-saving measure if you were buying a house anyway. You might as well try to get a discount if financial conditions have deteriorated.

And logically, home sellers should understand and be more willing to extend this discount.

While you’re at it, you could even ask your real estate agent for a loan to offset closing costs.

Also be strategic about the type of mortgage you get. If you think you’ll likely refinance sooner rather than later, try not to pay too much at closing.

Instead, consider a lender loan that covers most or all of your closing costs.

This way, you leave nothing on the table if you only keep your loan for six months or a year.

One of the main disadvantages of paying discount points is that it often takes a few years to break even.

This means that if you don’t keep the loan for, say, 24 months or more, you’ll never really see the benefits.