Homebuyers are up against it in the current market – with mortgage costs soaring, inventory at record lows and increasing numbers of sales falling through at the last minute.
But prospective owners may have more bargaining power in today’s environment than they realize.
Mortgage lenders are more open to negotiation as experts say high interest rates have reduced the pool of potential buyers, and sellers are more open to compromise because they don’t want to risk the deal falling through.
According to property company Redfin, nearly 60,000 home purchase agreements were canceled in August as home buyers got cold feet. That equates to nearly 16 percent of homes that went under contract that month.
That means Americans may benefit from more wiggle room when looking to buy a home in the coming months.
Prospective homeowners may have more bargaining power in the current environment than they realize, according to experts
Negotiate a mortgage rate buydown
In addition to always making sure they’re looking for the best deals, prospective buyers should consider asking for a mortgage rate discount.
Jeff Scott, surname First Option Mortgage in Atlanta, Georgia, said increasing numbers of lenders and sellers are offering this option and it has become a “savior” for many people.
“There are far more buyers than sellers in the current market,” he told DailyMail.com. ‘This causes sellers to offer more concessions to buyers so that they can buy down rates.’
Buying out involves a seller agreeing to pay a lump sum of money which is then used to lower a buyer’s interest rate over a set period of time – and it can shave thousands off their loan repayments.
It can be cheaper for a seller to agree to this type of transaction than to lower the price of their property. The cost of the down payment is covered by the seller’s profit on the house sale.
Jeff Scott, of First Option Mortgage in Atlanta, Georgia, said increasing numbers of lenders and sellers are offering a mortgage foreclosure
Offers are divided into two types: permanent and temporary.
Temporary buybacks – which are much more common – see sellers pay to lower the mortgage rate in the first year or two after the sale. After that, the homeowner is responsible for the full rate.
However, a permanent buy-down – much more profitable for the buyer but more expensive for the seller – is when the rate is lowered for the entire mortgage.
Common ways to structure the deal are in three-year, two-year and one-year buyouts – referred to in the industry as 3/2/1, 2/1 and 1/0 deals.
In a 3/2/1, the rate is greatly reduced for the first year, partially reduced for the second and third years, and then returns to the original rate in the fourth year.
Scott said he offered a 2/1 buy-off to several customers.
“What it does is buy the interest rate down by two points in year one, and down one point in year two, before going to the note rate in year three. It takes the stress of a high monthly payment for two years off the buyer.’
Each point typically costs 1 percent of the loan amount and is worth a 0.25 percentage point reduction in the rate, bank rate analyst Ted Rossman said. The Wall Street Journal.
According to Bankrate, the average 30-year fixed mortgage rate is 7.80 percent. Lender Freddie Mac, meanwhile, puts it slightly lower at 7.49 percent.
Take out a $300,000 loan at 7.80 percent, Rossman said. If the seller buys two points, it costs $6,000 and lowers the buyer’s interest rate to 7.30 percent.
This will lower the monthly principal and interest payment from $2,159 to $2,056 – which is a savings of $103 per month and $37,080 over 30 years.
The average 30-year fixed-rate mortgage rose to 7.49 percent, according to the latest data from lender Freddie Mac
Ask the seller to contribute to the closing costs
Another option homebuyers can look into is asking the seller for a credit to use for closing costs.
South Carolina realtor Ruthie Ravenel told the outlet how she worked with buyers who wanted to buy a home listed for $950,000 — but they wanted help with closing costs.
Ravenel advised the buyer to offer $965,000 and then ask the seller for a closing cost credit of $15,000.
The buyers were able to finance the $15,000 in their mortgage over 30 years instead of paying up front — and the sellers were motivated to help so the deal could go through.
Repair of property repair
Homebuyers can also consider asking for a cut of the asking price if the property needs repairs, experts say, or ask for things to be fixed before their move-in date.
Gerard Splendore, a real estate agent in New York City, told the store that he is now working on a sale where the seller is dropping the price by $30,000 because of problems with the windows and they are eager to close before the end of the year .
This comes as data from real estate portal Zillow shows that the number of sellers lowering prices has reached its highest level this year.
Some 9.2 per cent of listings reduced their asking prices in the week to 23 September – compared to 6 per cent in April and 7.9 per cent in the same week in September 2019.
While a post-summer cooldown occurs every year, economists noted that the trend accelerated this fall.
“Overall, there are more motivated sellers and more active listings than at any time since last December, improving buyers’ odds of finding the right match,” said Zillow Senior Economist Jeff Tucker.