Interest rates are high and housing supply is low, making the housing market difficult but not impossible to manage, experts say.
There are still plenty of ways to maximize a budget if you’re a buyer or to ensure you get top dollar and keep costs down if you’re a seller. Strategies include knowing what fees might be negotiable, what home features to invest in, what type of lender to look for, what types of mortgages are available and the tax benefits of selling and buying another home, experts say.
Can I still get a 3% mortgage rate?
Yes, if a seller has a so-called transferable mortgage at a lower rate, you can take it over.
Portable mortgages are typically those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the United States Department of Agriculture (USDA).
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About 12 million, or 23%, of outstanding mortgages are eligible for assignment, according to data and technology firm Intercontinental Exchange. Of those, 7.2 million, or 14%, are eligible for assignment at interest rates below 4%, which could save buyers thousands of dollars and generate more offers for sellers. Current loan rates hover around 6% to 7%.
On a $400,000 loan with a 7% interest rate, the monthly payment for principal and interest is about $2,660. With a 3% rate, that payment drops to $1,686. That’s a difference of nearly a thousand dollars in monthly housing costs.
These transactions also do not require an appraisal, which can save buyers hundreds of dollars.
What are the disadvantages of portable mortgages?
- Portable mortgages aren’t easy to find. Only a few listings offer them, said Chris Birk, vice president of mortgage research at Veterans United Home Loans.
If you’re looking in Arizona, Georgia, Colorado, Florida, Illinois and Texas, you can check out the alleged listing site Roam, which launched last September.
You may need to make a substantial down payment. For example, if someone has $350,000 remaining on their loan and sells their home for $450,000, the person assuming the loan would need to pay the homeowner $100,000 at closing to make the assumption logical. That’s a lot for most people, experts note.
Roam can also help buyers secure secondary financing to cover the down payment, typically the difference between the sale price and the mortgage in these transactions.
- These deals can be complicated to close. Roam promises sellers 45 days to close, or it will pay the seller’s mortgage until closing, said founder and CEO Raunaq Singh.
- For veterans, their rights to purchase the home will remain in escrow until the loan is fully repaid, Birk said. An entitlement is the amount the Department of Veterans Affairs guarantees to repay lenders, typically $36,000 or 25% of the loan amount, if the borrower defaults and helps determine how much a veteran can borrow before needing a down payment. That means if a veteran needs to buy a replacement home, the entitlement will be reduced for that purchase because of what is escrow in the first property, Birk said. If the mortgage goes into foreclosure or short sale after the mortgage is taken over, veterans will lose all entitlements.
What fees are negotiable when buying and selling a home?
Fees that may be negotiable with a lender include:
- Registration fees
- Loan origination fee covers the costs of taking out your loan, which may include processing your loan application, preparing loan documents and reviewing your credit profile
- Fees associated with fixed rates that guarantee your rate during the loan process or purchasing points to lower your interest rate
- Real Estate Agent Commissions. If you’re a seller and don’t want to negotiate your own agent commissions, ListWise will connect you with agents who are willing to work under an incentive commission, instead of the current fixed percentage structure. Basically, agents agree with you on a minimum price they think they can get for your home. If the sale price exceeds that amount, agents receive 0.75% of the final price plus a 20% incentive bonus on every dollar above the agreed-upon price. This approach “focuses attention on what’s most important, getting the highest price for your home,” said founder Nic Johnson.
- State and local government recording fees, usually paid by the buyer or seller
To get the best rates, compare lenders, experts say.
“Get estimates and see the variances,” said Darren Tooley, senior lending manager at Cornerstone Financial Services. “That gives you information and a basis to say, ‘I’ve gotten quotes from other lenders and would you be willing to work with me?’”
What type of lender should I hire?
Find a lender that “offers a variety of loan products and can help you maximize financing with credit enhancement, lower-cost PMI (private mortgage insurance) options based on your down payment, payment points or temporary buydowns,” Tooley said.
Private Mortgage Insurance (PMI) may be required for the purchase if your down payment is less than 20% of the purchase price, and points are a form of prepaid interest that you can choose to pay up front in exchange for a lower interest rate and monthly payments.
Temporary buydowns are advance interest payments that allow you to take advantage of a lower interest rate for a short period of time. “It bridges the gap (before rates go down),” he said. “People can afford a 5-6% loan even if it’s for a year or two, and then they refinance.”
Find a lender:Best Mortgage Lenders June 2024
What are the tax benefits of selling and buying a home?
- If you sell your primary residence, you can exclude up to $250,000 of the profit from federal income tax as an individual or $500,000 as a couple filing jointly. That applies if you lived there for at least two of the last five years and haven’t sold another home in the last two years, the IRS said.
State tax rules vary, so you should check local laws, said Mike Zovistoski, partner at professional services firm UHY.
With housing prices having risen significantly over the past five years, many people selling their homes could likely take advantage of this exclusion, he said. If you’re planning to downsize, you could sell your home, buy a smaller, less expensive home with cash and pocket the difference tax-free.
Additionally, if you itemize your taxes, you can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt. If you’re married and file your taxes separately, the limit drops to $375,000, the IRS said.
What adds the most value to your home?
Anything that adds appeal, Tooley said.
“Landscaping is one of the biggest money-makers, dollar for dollar,” he said. “Inside, you have to declutter, repaint or do some touch-ups.”
Energy efficiency and solar measures, for which you can get tax credits, can also add value, Zovistoski said.
Renovated kitchens and bathrooms are also popular, real estate agents say.
What are the types of mortgages?
The main types of mortgages are:
- Conventional loans, typically used by people with good credit
- Government-backed loans, ideal for those with lower credit scores and smaller down payments
- Jumbo loans, typically for people with good credit who want to buy expensive homes
- Fixed rate loans with fixed interest rates and stable monthly payments
- Variable rate loans whose interest rates change periodically based on changes in a specific benchmark index
Medora Lee is a personal finance, markets and money reporter at USA TODAY. You can reach her at mjlee@usatoday.com and sign up for our free Daily Money newsletter for personal finance advice and business news Monday through Friday mornings.
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