Is It Still Possible to Find a Cheap Mortgage in This Market?

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The days of 3% mortgage rates aren’t coming back anytime soon, but you might be surprised what you can find. Here’s what you should know. 

The average 30-year mortgage rate in the United States recently passed 8% for the first time since 2000 — and even after a recent pullback, the average fixed rate still sits at 7.86%. Just to put this into perspective, this means the monthly principal and interest payment on a $400,000 30-year loan is now 72% higher than it was at the beginning of 2022 when the average rate was hovering around 3%.

While it’s unlikely that 3% mortgage rates will come back anytime soon for home buyers, there could still be some ways to get a mortgage loan that is significantly cheaper than the average. Here are three strategies in particular you might want to look into.

1. Check out new homes

New homes are making up their highest share of the real estate market ever, and for good reasons. For one thing, existing home inventories are at a generational low, so it can make more sense to simply walk into a builder’s sales office and buy a home.

In addition, many new home builders are offering promotional financing deals with mortgage partners — essentially, the builder is paying to buy down your interest rate to well below the average rate. As one example, regional builder Dream Finders Homes is offering a 5.99% fixed interest rate with even better rates of 3.99% and 4.99% during the first two years on move-in ready homes.

2. Find an assumable mortgage

Many people don’t realize it, but there are several types of mortgages that can be assumed by new buyers upon the sale of a home. For example, if someone is selling the home and has an assumable loan with a 3.5% interest rate, you could potentially buy their home and simply take over their mortgage as-is.

The bad news is conventional mortgages aren’t assumable. But all three of the major government-backed loan types (FHA, VA, USDA) are. A buyer can even assume a VA loan if they’ve never served in the military.

As you might imagine, there’s quite a bit of competition among buyers when it comes to finding a property with an assumable mortgage, so finding one could require some creativity and research on your part (working with a good real estate agent can help, too). But if you can find one, it could make owning a home far more affordable.

3. Pay for a lower interest rate

Finally, if you have a substantial amount of cash, it could be worthwhile to buy down your mortgage rate by paying discount points. If you aren’t familiar, 1 discount point is equal to 1% of the loan amount, and you can typically get at least a 0.25% interest rate reduction by agreeing to pay 1 point.

Sure, the upfront cost of paying mortgage points can seem like a lot. But one smart exercise is to figure out your monthly loan savings with a mortgage calculator and multiply it by 360 months for the entire term of the loan. You might be surprised how much you could save in interest over the years compared to the upfront expense.

The bottom line

As mentioned, you’re not likely to find a mortgage with a 3% or 4% interest rate again anytime soon. Even if you can find an assumable mortgage with a rate in this range, be prepared to pay a premium for the home itself as a result. But the point is that there are ways you might be able to find mortgage rates that are significantly lower than the 8% 30-year loan rates that are prevalent in the market right now — if you know where to look.

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