Navigating Current Mortgage Rates in Southwest Washington: Strategies to Ease Interest Rate Shock

Oct 10

Since the spring of this year, we have seen mortgage rates increase steadily as a continued measure to combat inflation. While higher rates are intended, at least in part, to safeguard buyers from unsustainable home price growth in the long run, it's understandable that many buyers are feeling the impact of reduced purchasing power due to these rates. While we expect mortgage rates to decrease in the future, saavy buyers can seize the opportunity presented by the current reduced market competition to secure their dream home today, allowing them to act before a rush of buyers come back on the market when rates decline. To do this, they can employ some key tactics to manage interest rates and mortgage payments effectively.

National Avg Mortgage Rate Snapshot (as of 10.10.23):

30-Year Fixed-Rate Mortgage: 8.16%
15-Year Fixed-Rate Mortgage: 7.24%

Washington State Avg Mortgage Rate Snapshot (as of 10.10.23)

30-Year Fixed-Rate Mortgage: 7.88%
15-Year Fixed-Rate Mortgage: 7.10%

Please note that these rates are approximate and may have changed since the date of this blog. Mortgage rates are based on a variety of factors including your loan amount, credit score, and down payment.

Rate Buy-Downs: A Smoother Start
A mortgage rate buy-down, also known as "buying down the rate" or "paying points," is a strategy that allows you to reduce your mortgage interest rate by paying an upfront fee to your lender. Essentially, you are prepaying a portion of the interest you would have paid over the life of the loan, which results in a lower interest rate and potentially lower monthly mortgage payments.

Let's break down the essential components of a mortgage rate buy-down:
Base Interest Rate: Your lender will offer you a base interest rate, typically tied to prevailing market conditions. This rate is what your mortgage would be if you choose not to buy it down.
Points: In the context of mortgage rate buy-downs, "points" refer to an upfront fee equal to 1% of the loan amount. Each point paid upfront can potentially lower your interest rate by a specific fraction, usually 0.25%. For example, if you have a $300,000 mortgage, one point would cost $3,000 and could reduce your rate by 0.25%.
Interest Rate Reduction: The number of points you pay upfront will determine how much your interest rate is reduced. The more points you pay, the lower your interest rate will be.
Long-Term Savings: By reducing your interest rate through buy-downs, you can potentially save thousands of dollars over the life of your mortgage. Lower rates mean lower monthly payments, which can make homeownership more affordable.

Mortgage rate buy downs can be beneficial for buyers who have extra cash reserves available for a down payment and are willing to allocate some of those assets toward securing a more favorable interest rate. This can be especially important if you want to keep your monthly payments within a specific budget. In some cases, buying down points may mean you can qualify for a larger mortgage, which could allow you to increase your home budget. However, this should be a decision that is carefully reviewed before committing to a mortgage that will not be sustainable in the long term.
Paying more money upfront for long-term savings may not be the right choice for every buyer, however. For buyers who are planning to sell or refinance their home within a few years, the upfront cost of buying down the rate may outweigh the potential savings in the short term. This also is likely not the right option for buyers with limited cash reserves as there is a significant risk of financially overextending yourself early on. It is also important to weigh market conditions carefully. If rates are expected to decrease naturally over time, you may not reap significant long-term benefits from buying down your rate today.
Closing Cost Credits: Negotiating with Lenders
Our team has a number of trusted lenders we will happily refer you to, but we always recommend thoroughly researching and “shopping around” between lenders in order to understand the various loan programs and closing cost structures available. Doing this will give you a clear picture of what different lenders are offering, allowing you to identify opportunities for negotiation. Keep in mind that the opportunity to negotiate with a lender may hinge on your credit score, and any waived or adjusted closing costs may be balanced by higher interest rates.
Negotiating Fees
Many of the closing costs you will be responsible for are firm expenses that cannot be negotiated, however, there is some room for discussion on several of the lender-associated fees, including:
- Loan Origination Fees: Ask your lender to reduce or waive the loan origination fee, which is typically 1% of the loan amount.
- Appraisal & Inspection Fees: Some lenders may waive or reduce these fees as part of their incentives or promotions. You can also always request a lower appraisal or inspection fee if you believe the quoted fee is higher than the market average.
- Processing Fees: Negotiate or inquire about the necessity of certain processing fees.
Lender Credits
In some cases, lenders may be willing to offer you a credit toward your closing costs in exchange for accepting a slightly higher interest rate on your loan. This is known as a lender credit or a "no-closing-cost" mortgage. While this can be an attractive option to reduce your upfront expenses, carefully consider the long-term costs associated with a higher interest rate. It's essential to compare the savings on closing costs to the potential additional interest payments over the life of your loan.
Negotiating With The Seller
Negotiating the seller of the home you want to purchase can be a delicate process. There must be a careful balance between crafting a competitive offer and representing your strategic best interests. Thankfully, that is where our team will assist you. With several decades of experience across our team, we know when it is appropriate to negotiate terms versus when you want to put your strongest foot forward in your offer.
When there is room to negotiate, here are some of the financial categories we may look at:
Asking Price
The most common element to negotiate is the purchase price of the property. Buyers may make an initial offer lower than the seller's asking price, and the seller can respond with a counteroffer. The final agreed-upon purchase price is often the result of back-and-forth negotiations. This is perhaps the most obvious category of a buyer negotiation that can “weaken” your offer, but when appropriately used can offer the most immediate savings.
Various Contingencies
Buyers can make offer contingencies on almost every aspect of a home sale, such as the sale of the buyer's current home, home inspection stipulations, appraisal contingencies, etc. The more contingencies the buyer includes, the less competitive the offer becomes, but the greater the potential savings and convenience for the buyer will be.
Seller Concessions
Seller concessions are a way for home buyers to ask the seller to contribute money towards their closing costs via a change in their loan amount. Here is an example of how seller concessions could play out.
(1) Buyer offers $700K with a 20% down payment, including a 3% seller concession - this means that their total offer on the home is essentially $679K because the $21K seller concession will be used by the buyer to pay for closing costs.
(2) The seller counters back and accepts the $700K offer, but rejects the seller concession request. They can counter back and offer a seller concession added on top of the $700K. This would mean that the new purchase price would be $721K and the seller would use the additional $21K to cover the buyer’s closing costs—thus netting $700K. This can be a good compromise If the buyer has limited upfront cash reserves for closing costs and would benefit from paying those costs over time.
Builders and New Construction: Incentives and Negotiation
If you're considering buying a newly constructed home, builders often offer incentives to attract buyers. These incentives can be particularly advantageous in a rising interest rate environment.
How to leverage builder incentives:
Upgrade Credits: Builders may offer credits for upgrades, reducing the cost of personalizing your new home without increasing your mortgage amount.
Closing Cost Assistance: Similar to seller-paid closing costs, builders may offer to cover some of your closing expenses to make the purchase more appealing.
Rate Locks: Some builders may provide rate locks, guaranteeing a specific interest rate for a predetermined period, protecting you from potential rate hikes. This can be a double-edged sword if rates are higher than average, but doing initial lender research will allow you to identify a good deal.
Be Mindful of Your Financial Situation:
Our team will be there to guide you through your offer strategy and negotiations in order to secure the best possible deal for you. We will help you view homes that are within your budget, and offer advice on properties that will appreciate in value and become an excellent long-term investment. It goes without saying that the purchase of a home can be a life-changing financial decision and it is essential that you take every step possible to ensure you are making an informed decision that will set you up for long-term success.
Some of the many ways you can do that include:
Maintain A Healthy Credit Score: It almost goes without saying, but this is the best way to secure a favorable mortgage. Pay your bills on time, reduce credit card debt, and avoid opening new lines of credit before applying for a mortgage.
Budget Wisely: Understand your budget and how homeownership will fit into it. Consider not only the mortgage payment, closing costs, and moving expenses, but also property taxes, insurance, maintenance, the cost of furnishing a home, and other unexpected expenses associated with homeownership.
Consult a Financial Advisor: Seek guidance from a financial advisor or mortgage professional. They can help you evaluate your options and create a plan tailored to your financial goals. When you’re ready to move forward and purchase a home, our team will be ready to find your dream home within your specific budget.

Conclusion

We understand that higher-than-average mortgage rates can make the path to homeownership seem daunting, particularly for first-time home buyers or those who may be working with tighter budgets. However, with the right strategies and a clear understanding of your financial situation, you can navigate this challenge successfully. Whether you opt for rate buy-downs, closing cost credits, or negotiate with sellers and builders, the key is to be proactive and well-informed every step of the way.

Remember that while interest rates are essential, they are just one piece of the homeownership puzzle. Careful budgeting, financial responsibility, and long-term planning are equally vital to ensuring a successful and sustainable homeownership journey. Our team has worked through every market condition imaginable and has always guided our clients to successful home purchases and sales no matter the market circumstances. Give us a call today for a commitment-free discussion of what you can expect from today’s market and how we can help you achieve your home-buying goals.

To learn more about the services we offer our buyers, you can also view our digital “Buyer’s Guide” brochure here.

ROWENA LUSBY
Rowena@GoWithRo.com
(360) 909-6399

Sarah Whelan