Home affordability poses a significant challenge, with 60% of U.S. cities experiencing home price increases in the second quarter, as indicated by data from the National Association of REALTORS®. The median monthly mortgage payment for a typical existing single-family home stands at over $2,200, factoring in recent average mortgage rates.
However, there exist strategies for buyers to reduce their mortgage costs. While a stellar credit score makes buyers eligible for the best mortgage rates from lenders, additional savings opportunities are available, including the following:
Negotiation: While most home buyers have negotiated home price reductions, fewer than 40% have attempted to negotiate the initial APR or refinance rate on their recent home purchase. Remarkably, those who have attempted mortgage negotiation have achieved an 80% success rate, as per a study from LendingTree.
Comparison Shopping: It pays off to gather multiple mortgage rate quotes from different lenders.
Mortgage Points: Borrowers may consider purchasing mortgage points, typically in 0.25 increments, to lower the interest rate on their loan. This upfront payment at closing results in reduced overall interest payments over the mortgage term.
Request Discounts: Existing customers banking with a lender can inquire about “relationship discounts.” For instance, some lenders may waive a loan processing fee if a certain minimum amount is already deposited or invested.
Float-Down Policies: Given the fluctuating nature of mortgage rates during the closing timeline, understanding how to benefit from lower rates if they occur is crucial.
Mortgage Terms: While the 30-year fixed-rate mortgage is the most common, some lenders offer even longer terms like 40-year mortgages. Extending the mortgage term might lower monthly payments by approximately $100, but it entails higher interest payments over the loan’s life.
For prospective home buyers aiming to time the market for the best interest rates, a new real estate guideline emerges: “Commit to the house; consider the rate.” This advice suggests that committing to a long-term beloved home, regardless of current rates, could be more advantageous. Refinancing remains an option if interest rates decrease in the future.