No lie, You can find a 5.5% interest rate or even lower on your mortgage, even though the average rates are above 7%.
This interest rate hack could save you $140,000 or more over the life of the loan!!
Savvy investors and and some buyers know about this. But Most people don’t. Or if they do know, they have no idea how to find these properties.
I’m going to show you how take advantage of these low rates.
It’s not complicated, it’s not scammy, it’s pretty simple.
There aren’t many risks, but there are limitations.
So, if this works for you, you might come away with an easy win. And best of all, I’ve got a list of actual homes that you can use this on. It used to be that I had to depend on individual builders to send me the deals they had at that time, and then hope I actually had a client who could make use of their offer. For some reason, nobody has published a list of all these opportunities in one place. I just figured out how I could do that. And I’m going to tell you how to find the best mortgage rates.
I started writing this post a week ago and mortgage rates have gone up a ¼ of a percent since. That’s an extra $70/month in a mortgage payment. And payments are already really high.
Rates are the highest they have been since they hit 7% in October of 2022. That is highest they have been in 23 years. And now some economists are saying these high rates could be around for a couple more years AND they could go even higher. If what has happened over the last week is any indicator, they’re right.
This idea that rates are their highest in 23 years is particularly interesting to me because it’s been exactly 23 years since I bought my first home. In 1999 mortgage rates were 9% and we could only get approved for about half the price of a typical home at the time. And we needed a whole house.
So we waited.
By the year 2000, the world unexpectedly didn’t have a technology apocalypse, and rates had dropped to 7% and we jumped on it. We thought we were so lucky to have been able to buy a home. But now, especially with prices for homes up and inflation… 7% does not feel like a gift.
I know it’s easy to fall into the line of thinking that rates are on their way down, just because they’ve been high for awhile and we’re so used to MUCH lower rates. But we can’t make decisions on what we hope will happen, rather than what the reality is today.
Life happens, and no one knows what the future holds.
But I just remember those two years Timothy and I sat waiting, with rates at 9%, just waiting for the day that we could finally buy a home, paying rent into someone else’s bank account. We really wanted our own home, and that rate drop is what allowed us to enter the market. I hope that for some of you, this information will be just as life changing.
Maybe this is how you get into that house you’ve always wanted.
I want to warn you that there are two scenarios in which you should never use this strategy. I’ll get to that after I’ve shown you how it works.
I’m a realtor in Raleigh, North Carolina and every day I get New Construction Incentives hitting my inbox. This hack doesn’t only work in new construction but that’s how I got the idea. I’ll show you how to apply it to existing homes in a little bit, but you’ll find more of these opportunities with new construction so let’s talk about that first.
Believe it or not, home builders really do want to sell you a house. They have construction loans that they are paying on and they don’t want their houses sitting around while they are making payments on them.
So when a builder completes a house on speculation and it hasn’t sold yet, they are willing to make a deal to get it off their books as quickly as possible.
And the incentives they are offering on some of these homes is game-changing. But finding them (which is not always easy, but like I said, I’ve found a way to get them for you) and using the incentives the right way (we’re going to talk some mortageese in a minute) is the key to getting some insane rates that might make the difference between getting or not getting a house.
A few caveats:
You have to qualify for these rates. These rates are based on the best credit and not everyone will qualify for them, but that doesn’t mean you can’t get a discounted rate. It just might be a little higher than the best rate.
You might be thinking wait, I don’t have time for new construction. Doesn’t it take 6 or 7 months to build a house?
Or maybe you’re thinking, I can’t afford new construction. Isn’t it more expensive than an existing home?
First let’s talk about the price of new construction.
Budget Considerations
The Median price of an existing home in the Raleigh real estate market where I work is $409,900.
The Median price of new construction home in the Raleigh real estate market $415,000.
So it is a little more expensive, but it actually costs less.
If we look at national sales prices, we see that new construction is actually a bit cheaper than existing homes. This is likely due to competition among existing homes and limited availability. [new: 415k, all homes 416k].
But let’s Look at the math!
The mortgage payment for an existing home at the median price is $2738. But when you apply the rate incentive we’re going to talk about in a minute, the mortgage payment for new home at $415k is $2356
But it gets better.
That $409k house at a normal rate Over 30 years is going to cost you a total of $985k
But that new construction home at $415k with the rate incentive, over 30 years is going to cost you a total of $848k
The more expensive home costs you $140,000 LESS over the life of the mortgage.
Let’s look at it one more way.
Qualification is based on how much you can afford a month.
If you’re qualified for the 409k existing home at $2738, that payment is the same as a 482,000 new construction home at a typical incentivized rate. Qualification is based on how much you can afford a month. If saving money is less important to you than getting a home big enough for your whole family or finding a home with a much shorter commute, this strategy allows you to afford a more desirable home for a lower monthly payment.
But how likely are you to find one of these great opportunities? They are much more rare than you would expect in this current market. Let’s look at the inventory data and then I’ll explain why the good deals are so limited.
How Difficult Are These Mortgage Rates to Find?
Currently 41% of new homes in the Triangle are new construction.
5 years ago it was only 23%.
That’s a good thing because we definitely have a shortage of housing in the Triangle, especially considering how popular of a relocation spot this has become. We need homes for the people moving here AND for the people who currently live here.
The raw number of new construction homes currently on the market is 3275 homes. But I only found 50 properties that mentioned special mortgage rates.
The reason is that builders learned from the 2008 housing crash how important it is to balance the number of homes you build with the volume of people looking to buy. They build fewer spec homes these days than they did back in 2005-2008.
A spec home is a home built on speculation…the idea that when this home is ready to be occupied, there WILL be a buyer for it. Builders are doing a lot more pre-sales than they did last time around, which is allowing them to keep the ratio of homes available pretty equal to the number of people buying. But it’s impossible to 100% predict future demand, so builders always have a few more homes than they have buyers for.
So the supply is limited, but the rewards can be great if you can scoop up one of these houses.
The Good News
The fantastic news is, these deals are almost always for homes that are finished or almost finished.
And they usually have a required deadline to be under contract in order to get the rate deal.
So for these homes, you usually don’t have to wait.
And they come in every price point, in every location in the Triangle. Because it’s based on a predetermined guess of supply and demand, which is always a little bit off and happens everywhere and in every price point. There are cheap homes, there are luxury homes, there are homes on acreage. Seriously tons of variety in this list.
If you’d like to be added to my new construction incentives email list, you can click here to register. You’ll get a monthly email with all these incredible deals. And if you want some help with your search, You can click here to schedule a call with me to get started. My team would be thrilled to help you if you’re in the Raleigh area! If not, I would be glad to refer you to an incredible agent in my network around the country.
Let’s look at a couple properties that are listed right now with the incentive numbers so you can see how that plays out on the cost of the home.
Currently Listed Examples
107 Banning Drive is in Pittsboro. It’s in the Chatham Park neighborhood. And is listed at $554,900 with a $30,000 rate buy down incentive.
This is where we talk a little mortgageese. . . .
This is how a rate buydown works. You can purchase points that reduce the interest rate. 1 point = 1% of the MORTGAGE VALUE, not the home price, and I’m assuming a 10% down payment here so a mortgage value of $500,000. That makes the cost of one point $5000.
So when the builder is offering you 30k to buy down the rate, that buys you 5 points which makes the rate 5.75% if you’re buying it down from 7%.
So the mortgage payment went FROM $3327/month before the rate incentive was applied to $2918/month.
Because the language used is kind of confusing, a lot of people think paying a point gets you a 1% lower interest rate. But that’s not the case. One point will buy down a 1/4 of a percent point on the interest rate.
So in the case above, you’ve got a $500,000 mortgage. One point costs $5000. And because each point buys ¼ of an interest rate percentage point reduction, it would cost you $20,000 for a whole interest rate percentage point. (4 points equals one and interest rate reduction of 1%)
If rates are 7% and you want a 5% rate, you’ll need 40,000 on a 500,000 mortgage.
Here’s Another Example
829 Avonmore Dr, Wendell (Sold July 2023)
$405,990
The builder is offering $30k in CLOSING COSTS. Here’s something to know. Points are part of closing costs. So if a builder is offering 30,000 in closing costs, you can use that to pay down some points on the interest rate.
In this case:
- 1 point = $3654
- 30k buys 8.2 points!! Which is the same 2.2%
- That would be an interest rate of 4.8%
- FROM $2431/mo TO $1917/mo
Rate Buy Downs in Existing Homes
Now let’s talk about how to get these low rates in existing homes and then I’ll tell you when you should NEVER use this tool to get a lower rate.
In the same way, you can negotiate closing costs from the builder, you can negotiate those costs from the seller of an existing home. Remember when I said that points are just closing costs? We negotiate closing costs all the time in a home purchase.
The tricky part is you need quite a bit of money to apply to those points before you have a big effect on the rate.
Existing homeowners are often less negotiable than builders, because they also have to buy a home when they move and most of them are leaving a really low 2-3% rate and getting bitten going up to these higher rates. Many people are deciding it’s not worth selling at all. So you have to be very selective on which types of sellers might be open to doing this. But they DO exist. To start with, homes owned by corporations are sometimes good options.
When NOT To Buy Down Rates
When you buy down the rate, you’re basically making your monthly payment cheaper by paying a lot of money up front to get the cheaper rate.
You should only do this if you plan to keep the house for long enough to actually save money.
You want how much you save each month to be less than that chunk of money you paid down when you bought down the rate. There are online calculators that will show your break even month, but you really want to more than break even. Because if you just break even, you could have invested the money you used to buy down the rate to give you a return on that investment.
It’s a lost opportunity cost.
At any rate, the absolute minimum you want to stay in the house is 5 years. I ran the numbers for a few different scenarios…for a $300,000 home, a $500,000 home and a million dollar home and they all gave me between 59 and 61 months to break even. 60 months is 5 years.
Financial Readiness
And scenario # 2 where you should not take advantage of this hack is this: if you don’t have some kind of emergency fund set up, you’re not ready to buy a house at all, regardless of interest rate. If you can’t weather a few months without a job, without losing your home, you’re not ready to buy a house.
