I often try to find silver linings in bad situations.
The latest issue facing prospective home buyers is a return to 7% mortgage rates, up from around 6% just one month ago.
While there’s not a clear, negative correlation between mortgage rates and home prices, in that one goes up and the other down, you can still make that argument to a home seller.
If you’re currently in the market to buy a home, you can use this big move higher in mortgage rates to your advantage.
Simply put, home buyers can make the argument that it got more expensive to buy a home and therefore ask for a discount.
Buying a Home? Ask for a Discount in Light of Higher Mortgage Rates
A month ago, you could get a 30-year fixed mortgage for around 6%.
Today, prospective home buyers are looking at a rate closer to 7%. Or higher!
And it’s possible it could get even worse before it gets better given all the uncertainty flowing at the moment.
Instead of fretting about the higher monthly payment, you can use this to your advantage and make a lowball offer.
Home sellers will be well aware that mortgage rates have risen, and that housing affordability has worsened.
As such, you can lower your offer price and hope the seller goes with it.
When making an offer, be sure to have your agent communicate this to their agent so your lower offer price has a better chance of being accepted.
While it’s not guaranteed to work, you at least have a fairly strong argument to make.
Especially with fewer other bidders as a result. If there’s less competition, a lower offer has a better chance of winning.
How Much Lower Can You Go?
While this is certainly a smart strategy to employ at the moment, there’s no guarantee it will work.
Ultimately, you need to look at the list price and determine what a reasonable offer price is taking into account rates that are about one percent higher than they used to be.
Chances are you’re not going to get a one-for-one deal where your monthly payments stay exactly the same.
So if the monthly principal and interest payment was $2,500 at 6%, you likely won’t be able to negotiate a lower price where the P&I remains at $2,500 at 7%.
However, you might be able to meet somewhere in the middle with the seller depending on how desperate they are.
Remember, if they have fewer bidders, your offer is going to be a lot more attractive, even if it’s lower.
You can do some math with your agent, or fire up a mortgage calculator, to determine that number. Maybe start at something where your monthly payment looks like it did a month earlier.
Then hope they meet you somewhere close to that.
Tinker with the numbers and see what makes sense without getting into a situation where your offer is seen as “insulting”.
You might be able to save some bucks and offset the big increase in rates.
Alternatively, you could ask for seller concessions for a temporary rate buydown to secure a lower rate for now.
A Lower Purchase Price Is Permanent, Unlike Rates
The beauty of getting a lower purchase price is that it’s permanent, unlike mortgage rates that can change daily.
This comes with the advantage of a lower down payment, and potentially lower property taxes and homeowners insurance.
The added bonus is that if and when mortgage rates do fall, you can ideally refinance to that lower rate.
In the end, you might wind up with a lower purchase price AND lower mortgage rate to boot.
For example, perhaps you’ll be able to score a home sales price that’s $25,000 or $50,000 less.
And over time, still snag that mortgage rate that starts in the 5s if all goes according to plan.
In other words, you could get the best of both worlds.
Enjoy Less Home Buyer Competition While Rates Climb Higher
But wait, there’s more. As noted, you might face less competition while mortgage rates are high.
Every time rates go up 1%, millions of prospective buyers no longer qualify for a mortgage.
If you still do, this can make it easier to find a home while enjoying a better array of options.
This is why I also recently argued to use a higher mortgage rate when home shopping so you stay in the running, even if rates are volatile.
That being said, I don’t buy into trying to time the market. So this isn’t a strategy to buy now and refinance later.
It’s just a potential money-saving move if you were buying a home anyway. You might as well try to get a discount if financial conditions have worsened.
And logically, home sellers should understand and be more willing to extend that discount.
While you’re at it, you could even ask for a credit from your real estate agent to offset closing costs.
Also be strategic about the type of mortgage you get. If you think you’ll probably refinance sooner rather than later, try not to pay too much out-of-pocket at closing.
Instead, consider a lender credit that covers most or all of your closing costs.
That way you don’t leave anything on the table if you only keep your loan for six months or a year.
A major downside to paying discount points is they often take a couple years to break even on.
Meaning if you don’t keep the loan for say 24 months or more, you’ll never actually see the benefit.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
