Home Mortgage How to Get Lower Mortgage Rates Today: 2 Creative Financing Strategies

How to Get Lower Mortgage Rates Today: 2 Creative Financing Strategies

by Joshua Garcia

In today’s high-rate environment, it may seem challenging for homebuyers to secure low mortgage rates. However, some creative strategies are allowing savvy investors to lock in lower rates and subsequently lower monthly payments. San Diego-based real estate investor Kent He recently financed his latest investment property with a 2.5% interest rate, demonstrating that favorable rates are still possible to obtain.

One popular strategy for obtaining lower rates is seller financing. Rather than using traditional mortgage originators like banks or credit unions, buyers purchase directly from the seller, who acts as the lender. This arrangement allows the buyer and seller to negotiate terms such as the interest rate and payment schedule. He successfully utilized this strategy for his most recent acquisition, an affordable housing unit. He and the seller agreed on a large down payment (50%) and a low interest rate (2.5%), with a 10-year balloon payment. Other investors have employed similar approaches, with terms ranging from 20% down at a 4.9% fixed interest rate to 10% down, a 4% fixed interest rate, and a five-year balloon payment.

Seller financing offers benefits for all parties involved. For buyers like He, it results in a “win-win-win” situation. They are able to give the seller what they want, secure a reasonable monthly payment, and provide a better quality of life for their tenants. Sellers benefit from a steady flow of passive income without incurring realtor fees, and they have the flexibility to negotiate terms with buyers.

However, it’s important to note that seller financing comes with one significant caveat: the due-on-sale clause. This clause allows the mortgage company to demand payment of the remaining debt in full if there is a change in title. Therefore, buyers must find sellers who own their properties outright to pursue this financing option.

Another strategy gaining traction is subject-to financing. With subject-to financing, the buyer assumes the existing mortgage, making payments on behalf of the seller without formally assuming the loan. This approach allows buyers to inherit the seller’s low-interest rate, offering a significant advantage in today’s high-rate environment. Additionally, buyers do not need to qualify for a loan, making this strategy more accessible for those who may not meet traditional lending criteria.

Subject-to financing also benefits sellers. They have the opportunity to become the lender and create terms that suit their preferences. Everything is negotiable, from the down payment percentage to the interest rate. This flexibility enables sellers to potentially sell their properties above market rates.

Real estate investor and consultant Zeona McIntyre, who owns nine investment properties, is an advocate for subject-to financing. She emphasizes the negotiation aspect of this strategy, stating that everything is a lever that can be pulled to create favorable terms for both buyers and sellers.

In today’s market, where high interest rates are prevalent, it’s crucial for homebuyers to explore creative financing options to secure the most advantageous terms. Strategies like seller financing and subject-to financing empower buyers and sellers to craft agreements that suit their unique circumstances. By tapping into these creative financing methods, homebuyers can successfully navigate the current high-rate environment and secure low mortgage rates and affordable monthly payments.

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