Three Things Home Buyers Can Negotiate for with Rates at 8%

Although mortgage rates are high, there are other ways for potential homebuyers to save

Amidst soaring mortgage rates reaching 8% and a dearth of new listings, prospective home buyers find themselves grappling with substantial expenses and limited alternatives. Nonetheless, there exists a silver lining—they possess more bargaining power than they might perceive.

Recent data from Redfin indicates a notable uptick in failed home sales, underlining buyers' hesitance, with nearly 16% of pending transactions collapsing in August, compared to about 11.7% during the same period in 2021. Consequently, sellers are more receptive to certain requests as to not risk losing the deal.

Beyond merely scouting for the most favorable rates, buyers can also leverage a range of additional concessions from sellers to alleviate their burden of closing costs and monthly payments. Here are three key considerations for potential requests from sellers:

Help with closing costs

Real estate agents suggest considering requesting a credit from the seller to offset closing costs. Closing costs are typically from 2% to 5% of the financed amount and are usually paid by the borrower. For example, if you were to borrow $100,000 to buy a home, you could expect to pay $2,000 to $5,000 in closing costs.

Closing costs that sellers can help cover include:

• Appraisal fees: The expense assessing the current market value of the property

• Attorney fees: In certain states, legal assistance may be required for closing

• Discount points: An upfront fee paid to secure a reduced mortgage interest rate.

• Inspection fees: Associated costs for conducting a thorough examination of the property to identify any potential damage, pests, or other concerns

• Loan origination fees: Charges for processing your loan application

• Property taxes: Taxes up to the end of the year at the time of closing

• Recording fees: Minor charges for registering the home purchase with local governmental authorities

• Title insurance: Coverage safeguarding the lender from any claims against the property, with the option to also procure a separate buyer's policy for personal protection

Get a rate buy-down on your mortgage

Real estate agents note an increasing trend among lenders, sellers, and home builders to assist in reducing a buyer's mortgage interest rate for a specific duration, also known as a rate buy-down.

For instance, considering a $300,000 loan at 7.80%, if the seller acquires two points at a cost of $6,000, the buyer's interest rate could decrease to 7.30%, resulting in a monthly principal and interest payment reduction from $2,159 to $2,056 (translating to savings of $103 per month and $37,080 over 30 years).

However, it's important to recognize that the appeal of a permanent rate buy-down may diminish if interest rates decline in the future and prompt refinancing. Furthermore, some lenders may offer opportunities for future mortgage refinancing at no additional cost, although the terms of such offers vary.

Fixing up the house

According to real estate agents, sellers are displaying a greater willingness to address repairs compared to approximately two years ago. Seller concessions can include repairs and upgrades to the home. For example, if you incorporate a home inspection contingency into your offer, you can then opt to withdraw from the agreement or request the seller to address specific repairs based on the findings of the inspection.

When it comes to seller concession for home repairs, concentrate on significant issues like a leaking roof or a malfunctioning water heater. Minor cosmetic imperfections, such as a missing light bulb or a broken window latch, are tasks you can manage independently. If the seller pushes back, explore negotiating a credit at closing to mitigate some of the repair expenses.