Many people, deterred by interest rates over 7%, have put off their real estate plans for the near future. Fannie Mae, the agency that buys mortgages from lenders, predicts that rates will drop to 6% by October 2024. Other experts expect rates to drop even more. So, what do we do in the meantime?
Whether you are buying or selling, there are several ways to mitigate the higher rates. Sellers, you can offer to buy down your buyer’s interest rate to encourage them to choose your property over others. Buyers, you can buy down your own rate. According to John Bohannon, Senior Loan Officer for Movement Mortgage, most buyers are choosing to go with a 15% down payment rather than the traditional 20% down. Then, they use the other 5% to buy down their rate.
There are two types of buy-down programs. In a permanent buy-down, the lender charges 1-2% of the loan amount up front to drop the interest rate by .25 to .5% over the life of the loan. Because most experts agree that rates are expected to drop soon anyway, Bohannon does not recommend this approach.
A temporary buy-down might make more sense. In this scenario, the buyer pays a percentage of the loan to lower the rate for one, two or three years. For a one-year buy-down, the rate is dropped by 1% for the first year. In a two-year buy-down, the buyer gets 2% off the rate for the first year and 1% off in year two. For a 3-year buy down, the borrower gets a 3% reduction the first year, 2% the second year and 1% on the third year. The cost, paid at closing, can range from .75% of the loan amount to over 4% depending on which product you choose. All these programs assume the borrower will refinance once the rates go down, but the lower rates allow them to buy sooner and avoid the buying frenzy expected after the rates drop.
These programs are generally available for all loans including FHA and VA.
You may wonder if an Adjustable Rate Mortgage (ARM) is a good option right now. In the past, these were attractive because the rates were much lower than a fixed rate mortgage; but today, because those rates are almost as high as conventional loans, not many are being written.
There is, however, another option. When the rates decrease next year, many lenders are offering to refinance your home with no lender fees. If they service their own loans (i.e., don’t sell them to another entity) they can also waive the Georgia Intangibles Tax which is $3 for every $1000 of the price of the house. You would have to pay for the attorney’s closing fees, but your original downpayment and payments would be credited.
According to a recent article in The Wall Street Journal, a new firm called “Roam” is moving into Georgia with its charter to help people take over assumable loans in purchase transactions. The article states that 22% of currently active loans are assumable under certain circumstances, and this firm works with its clients to make that happen. The buyer will need to make up for the home’s equity with cash and there may be other expenses; however, over 40% of current mortgages are under 5%, so it might be worth the effort.
Just a word of advice when evaluating lenders, be sure you are comparing apples to apples. If a company quotes a much lower rate, confirm they’re not making that up in some other fee. Before you use any mortgage company, especially an internet lender, be sure to talk to your real estate agent. Their experience with various lenders is invaluable. Mortgage companies are definitely not all the same.
If you want to buy or sell a house, there are many reasons to move forward and not wait. For sellers, you have very little competition. Even if your house has a few flaws, the lack of competition helps buyers overlook that. For buyers, it’s the end of summer, the best time to hunt for bargains. These programs will get you into your dream home now so you can enjoy fall on Lake Lanier. Believe me, you’ll love it.
John Bohannon, senior loan officer with Movement Mortgage, contributed to this article.
You can reach Bev at 678-860-0990 or www.HousesOnLanier.net.