While many Americans may think that getting their mortgage rate below 4% is not realistic with current interest rates, there is still hope.
While the housing market remains unfavorable for buyers, experts say mortgage rates below 4% could save you a lot more money if you know where to negotiate and how to put your money toward your home.
Read more: Find out more about assumeable mortgages and how to transfer your mortgage
The best way to ensure you get a mortgage rate below 4% is to look for an “assumable mortgage” — these are mortgages that are insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the United States Department of Agriculture (USDA).
Currently, 23% of active mortgages are available for assumption, or about 12 million across the U.S., according to the Intercontinental Exchange. Of those, 14%, or 7.2 million, have interest rates below 4%.
“While the number of mortgages available for assumption is relatively low today, they are certainly growing and will continue to grow as some sellers feel pressured to sell their homes in a rising price market,” Alex Bean, a lecturer in financial literacy at the University of Tennessee at Martin, told Newsweek.
Read more: How to qualify for an affordable mortgage
He adds: “The idea of an assumeable mortgage is that the buyer essentially takes over the original interest rate that the current owner was receiving, which can be significantly lower than the average interest rate currently being offered by banks and other lending institutions. The downside is that the buyer will usually have to pay higher upfront costs to take over the loan at that rate.”
As any home buyer knows, the lower the interest rate, the more money you can save when purchasing a home. With mortgage rates typically set at 6 to 7 percent, that could add up to thousands of dollars saved each month.
But with all that savings, many Americans worry that assumeable mortgages come with pitfalls. First, assumeable mortgages are rare to get, and there are very few properties advertised.
A “For Sale” sign stands in front of a home in San Marino, California, on September 6, 2023. While many Americans may think it's impossible to get a mortgage rate below 4% with current interest rates, there's still hope. View more FREDERIC J. BROWN/AFP via Getty Images
There are ways to improve your odds, as estimable listing sites like Roam are beginning to exist. Admittedly, Roam is specifically limited to homeowners in Arizona, Georgia, Colorado, Florida, Illinois, and Texas.
Read more: Find the lowest interest rates from top mortgage lenders
But assumerable mortgages generally require higher down payments: To buy a $450,000 home, you might need to put down $100,000 — an amount that's out of reach for many ordinary Americans struggling with inflation and general economic uncertainty.
“This is a great deal in the current interest rate environment, but keep in mind that you'll need to have significant cash on hand to qualify for these low rates,” Bean told Newsweek. “Even if you qualify, make sure the long-term calculations make it right for you. At the end of the day, the real issue in the current housing market is affordability in general. Even with low interest rates, it may be difficult for buyers to purchase a home in the long term.”
Veterans seeking assumeable mortgages also face challenges because the right to buy a home that the VA has committed to paying off isn't fully guaranteed until the loan is paid off. In effect, if a foreclosure or short sale occurs, veterans could lose their rights, leaving them with nowhere to turn.
But the best way to get an underwriting mortgage rate is to negotiate, negotiate, and negotiate.
Buyers have the right to negotiate many fees, including application fees, upfront costs, interest rate lock-in fees, and even real estate agent fees.
ListWise also helps you find a real estate agent who fits your financial needs, who will see the lowest price they can get for your property and you will be paid based on how successful they are.
There are also several tax-saving strategies that can help you make more money from your property: For example, if you sell your primary residence, you can exempt up to $250,000 of your gain, or $500,000 for married couples, from federal income tax.
This is true as long as you have lived in the home for at least two of the last five years and have not sold another home in the last two years.
You can also deduct mortgage interest if you itemize the first $750,000 of mortgage debt paid on your annual tax return.
Keep in mind that any additions you make to your home, such as landscaping, painting, or energy upgrades, can increase your property value and may qualify for tax deductions.
Kevin Thompson, financial expert and founder and CEO of 9i Capital Group, says the best ways to lower your mortgage interest rate are some traditional, tried-and-true methods.
“The best way to get a low interest rate on a mortgage is to go through the more traditional process,” Thompson told Newsweek. “Credit scores are very important, and lenders will often work with those with the highest credit scores, and the higher your credit score, the more likely they are to give you a larger discount.”
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Newsweek is committed to challenging conventional wisdom, seeking common ground and finding connections.
Newsweek is committed to challenging conventional wisdom, seeking common ground and finding connections.