Do you miss the days of 3% interest rates on a mortgage? And do feel like you missed your opportunity when people say that we’ll never see that again? The good news is, you can still get a crazy low interest rate if you know where to look. This recently helped a client of mine secure a 3.75% fixed rate on a 30-year loan. So today I’m going to show you: this powerful hack that can help you get a great deal too…I’m also going to share a powerful tool that can make this even easier…and also show you a few other strategies that can save you a ton of money.
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But before we dive into how this all works, I want to show you just how much of an impact this can make on the kind of home you purchase. If you’re looking to keep your payment at $3,500 per month, right now you can afford a home like this one if you have a 7% loan. But if we move that rate down to 4%, you can supercharge your buying power and get into a home like this for the exact same payment!
The most popular way to get a lower rate right now is something your lender has probably told you about- but it has some downsides.
This first strategy will look familiar to you – because every cable and internet company uses it too, and it works pretty much the same way.
So you know how when you sign a contract for new internet service they give you a great deal for that first year? But then it year two, the cost goes up a bit, and it goes up to the normal rate in year three.
Lenders can do this too.
This is a temporary buydown, and it’s basically where the sellers of the home and your mortgage company play the part of the internet provider. The sellers will provide a credit to you at closing that pays to give you a temporary “introductory rate” on your mortgage.
Then it goes up a bit in year two, before hitting the normal, fixed rate in year three and beyond. But even with interest rates hovering in the 6’s, that will still get you down into the 4’s – at least for that first year. It’s not perfect, but it’s a great way to ease into a higher mortgage payment, plus if rates do happen to go down, you can refinance into the lower rate and keep any extra money that the sellers used to buy your rate down for you.
So how would this work in a real-world scenario?
Let’s say a seller is asking 700 thousand for a home. Instead of asking for money off the purchase price, we ask for $25k in concessions instead.
Concessions are then used to buy down the rate on the front-end of the transaction.
Imagine if right now you could add $25k to your loan amount and pay less on your mortgage every month for a few years.
This is basically the same thing.
I have a useful sheet from one of my lenders where you can plugin your own data. From here, you can see what you’ll save with some different scenarios.
So what if you want that lower rate, forever? Well, there’s two ways you can do that – and one will save you more money than the other, but it’s also a bit harder to get. So let’s look at the option that’s easier first –
Everyday I get emails from builders with some great incentives.
Home sales have been really slow for these guys for a couple of years now, and they’re trying lots of things to get rates down for buyers so they can sell more houses. Just about every builder is offering a credit towards closing that can be used for a rate buydown. But some are going a level above that. The larger builders all have their own lending companies, and some of them are using these to pre-purchase a block of loans and buy down the rates permanently for the buyers. This is called a forward commitment, and it costs a ton of money to do, but it also allows them to move their inventory so they can actually make money.
Now how do you find out about these incentives without giving your email to every builder in the country?
One technique is to subscribe to every builder’s email list and get bombarded with an overflow of information every day..
or…
You can call your realtor and task them to find out this information. While it’s usually a bit difficult to ahold of the actual sales rep, most real estate agents have them on speed dial. They can get the information VERY quickly.
But what about the other method – the one that’s harder to get? This will get you the most bang for your buck by far and even a rate under 4%, but only a few homes will qualify for this, and finding them can be tricky.
Back in the housing frenzy from a couple of years ago people often bought their homes sight unseen – and it’s not surprising that lots of them regret their purchase now.
But most of the mortgages on these homes will be in the 3% range, and if the situation is right you can actually step in and take over that loan.
This is called an assumable loan, and it’s only available if the loan is a government backed loan – meaning it’s an FHA Loan, VA Loan or a USDA Loan.”
But have you ever come across someone that has done this? Why does it seem so elusive?
If you did create a filter on the MLS (which is very unreliable), how do you know what the balance of the assumable loan is? And How do you find out what the rate is?
Sometimes Zillow will tell you if a loan is assumable, but there hasn’t been a user friendly client-side portal to help you.
Until now.
Everyday new homes with assumable loans are coming onto the market. With our site you can view almost every property with an assumable loan in a few states including Arizona, California, Colorado and Minnesota. We’re adding more states every month.
This website will help you navigate a ton of properties – all purchasable with a downpayment and a loan assumption.
Certified assumable properties are orange. These are vetted properties where the Realtor and home owner are open to an assumption. They’ve discussed it.
The other properties are not officially certified, which simply means the agent and the homeowner may not know it’s assumable. Its my job to educate these Realtors and see if their client would be open to an assumption.
Assuming a loan with a low percentage rate is like hitting the jackpot. It allows you to afford a much nicer property. But the process of obtaining assumable loans has it’s pitfalls. And you’ll need to learn all about them if you’re going to cast your net into the assumable home river.
Check out TakeThisRate.com to find assumable loan deals!
