How to Win in Real Estate, in Spite of Rate Hikes
As interest rates continue to rise, and home prices remain stable, days on the market are increasing. Most homes are no longer selling overnight, so inventory is rising. When you factor in market conditions and seasonality as we head into the late fall and winter months, the likelihood of a market slowdown becomes even more inevitable. So, what can sellers do to help their homes sell more quickly and stand out among the competition? And is it possible for buyers to avoid paying current interest rates? Consider the following options.
ASSUMABLE LOANS:If a seller has a mortgage, they can check with their mortgage lender to see if they have an assumable loan. If so, this may be a great way for a buyer to get into a home at a lower interest rate. An assumable loan is one in which the new buyer takes over the seller’s current mortgage loan balance and terms. Since interest rates have most likely risen since the seller took out their mortgage loan, this is a significant advantage for a buyer searching for a lower rate. The buyer still has to qualify for the mortgage through the seller’s lender and pay the seller their equity at closing. Many government-backed loans (FHA, VA, USDA) are assumable loans.
SELLER FINANCING:If a seller owns their home free and clear and does not immediately need all their equity paid out at closing, they could consider offering seller financing. For instance, the seller could offer a buyer a 5-year balloon loan at a 5-6% interest rate, beating out any rates that mortgage lenders are able to offer. The seller would need to verify that the buyer is qualified to make the down payment and monthly payments. Real estate attorneys are used to write up the terms, note, and deed for the buyer and seller.
INTEREST RATE BUYDOWNS:Mortgage lenders all offer 2/1 interest rate buydowns. By paying pre-paid interest points, the buyer can get an interest rate that is 2% lower the first year and 1% lower the second year of homeownership. For instance, if the buyer is locked into a 7% mortgage, they would pay 5% the first year and 6% the second year. This helps homeowners save a substantial amount of money in the first couple of years of owning their home. If a seller is willing to offer to pay these points upfront for the buyer, it will help attract more buyers.
SELLER CONCESSIONS:Ten years ago, it was very common for a contract to be written with the seller paying buyer concessions. Although a seller cannot contribute towards a buyer’s down payment if they are getting a loan, they can pay for closing costs and prepaid items like taxes, insurance, and HOA dues. These items typically cost anywhere between 2% to 4% of the purchase price. To help offset the higher cost of lending, a seller can offer upfront to pay a certain amount of buyer concessions.
These are just a few of the ways that a seller can try to stand out among the competition. Most savvy home buyers know that homeownership is still a great way to build wealth in the long term, and interest rates will not remain where they are forever. If you’re ready to buy, it’s strategic to get into real estate before rates go down and stir up a competitive market all over again.
To discuss your options for making a home sale or purchase this year, give The Steller Group a call at 720-593-9355. Our seasoned and experienced agents will help you find the best options for your personal situation.