1. Request a lower mortgage rate from the seller.
Since mortgage rates spiked in the beginning of 2022, temporary rate buydowns have become the norm. A part of the buyer’s interest payments are paid in advance by the seller under a temporary rate buydown. For the first one, two, or three years of ownership, this lowers the monthly house payments.
According to John Bianchi, executive vice president of loan Depot, “this is a common strategy for new-home builders, but it can also be used in the purchase of resale homes.” “Negotiating a temporary buydown with the seller can help soften the blow of high interest rates, reducing your monthly payment for one to three years.”
In a typical arrangement, the buyer’s interest rate is effectively lowered by two percentage points in the first year and one percentage point in the second year due to the seller’s payment. The buyer then pays the entire interest rate. It’s referred to as a 2-1 buydown.
Using discount points to permanently lower the mortgage rate is an additional choice. Each discount point lowers the interest rate by approximately 0.25 percentage points; one point is equivalent to 1% of the loan amount.
2. Pay down debt with a portion of your down payment.
The lender takes into account your entire debt payments for credit cards, student loans, auto loans, and real estate when you apply for a mortgage. According to David Kuiper, vice president and senior mortgage banker for Dart Bank in western Michigan, there are situations when it makes sense to redirect a portion of your planned down payment funds to pay off the higher-rate loan first.
“The proposed purchase is more affordable because, despite the slightly higher mortgage payment, the total debt/payments is lower,” Kuiper stated.
3. Use programs for first-time homebuyers.
Numerous initiatives are funded by state and municipal governments in an effort to lower the cost of homes for prospective purchasers, particularly first-timers. Assistance with closing expenses and a down payment is provided by some programs. Others provide tax credits or advantageous interest rates.
Each state has its own details. Some programs are intended only for specific cities, counties, or residential areas. Others are targeted toward particular demographics, such first responders, teachers, or tenants in public housing. Programs with income restrictions exist.
4. Make a request for financing from the vendor.
For a portion of the home’s value, you can issue the seller an IOU and pay the seller directly each month at a discounted interest rate compared to what a bank would charge. The term “seller financing” refers to this arrangement, which originated in the early 1980s when mortgage rates spiked as high as 18%.
Why a seller would consent to such a deal may be on your mind. Leading the Coffey Team at eXp Realty in St. Augustine, Florida, Janie Coffey stated, “They will often do this in order to get the price they want.” You receive a reduction on the interest rate, but the seller receives the whole amount.
5. Do not wait for a better pricing that suits you.
6. Avoid becoming sidetracked by unnecessary items.
Presenting a preapproval letter and providing financial documentation, such as account balances proving you have the money for the down payment, are two ways to indicate that you’re a solid candidate for a mortgage.
7. Purchase a fixer-upper
Purchasing a fixer-upper is a tried-and-true, traditional method of saving money. According to Brian Koss, regional sales director for Movement Mortgage in Danvers, Massachusetts, “if you can be patient, it’s worth buying a home that needs work and slowly fixing it up over time or taking a renovation loan to acquire the home and do the work upfront.”
8. Construct a home or purchase a new one
A few of the same benefits apply when purchasing a new home in a development. Additionally, the scarcity of existing homes for resale gives purchasers now additional incentive to focus their search on new development.
9. Part of the house is rented out
If you purchase a home today, you will initially be subject to exorbitant mortgage rates. But if you’re creative, you might be able to figure out how to buy a house.