Courtesy of Dana Bull
If you're looking to buy a home or invest in real estate in 2025, don't wait for rates to drop before making a move.
"I wouldn't base my whole plan around, 'Well, I keep hearing rates are supposed to drop,'" said investor and agent Dana Bull, noting that current rates are in line with the historical average. "This is kind of where rates sit. So, if they were to drop, that would be great, but I wouldn't be banking on it."
As of December 2024, the average 30-year mortgage rate fell to 6.30% from around 6.56% in November.
That doesn't necessarily mean you'll end up with a rate in the 6-7% range if you're buying property in 2025. Bull, who is financially independent thanks to her personal real estate portfolio and works with buyers in Massachusetts, shared two strategies to lock in a lower-than-average mortgage rate in any environment.
"People don't really realize that you can negotiate your rate," said Bull. "I know it's uncomfortable in our culture to feel like you're haggling over a rate, but I think it is really important going into a purchase that you are trying to negotiate the lowest rate possible."
It's especially important in today's environment, she added, as purchase rates are lower than refinance rates: "If I were to go and refinance property right now, I would have a higher rate than somebody who wants to go and buy that same property today. I know everybody just says, 'Buy it, don't worry about it, refinance if rates drop.' But rates need to drop significantly enough for you to be able to go and secure a lower rate as a refi."
Bull recommends talking to three different lenders, including at least one bank and one mortgage lender.
"The banks can be a little bit more nimble," she explained. For a first-time homebuyer, for example, "a bank is going to have access to certain programs versus a mortgage company." That said, "the mortgage companies are often really big, so there are some advantages there."
If you talk to three different lenders, you'll likely get three different rates — and they could vary more than you think, Bull said: "We are seeing so many fluctuations."
If you have a rapport with a lender, you can always give them the chance to match the lowest rate you were offered.
"If they can't, unfortunately, it's a business transaction, so you'll have to make a hard decision," she said. "If somebody comes in with a significantly lower rate and everything else is the same essentially, it does make sense to go with that lower rate, so long as that lender is going to be able to close the deal."
Temporary rate buydowns, which reduce the buyer's interest rate for a limited period, typically between one and three years, have become more popular as rates have increased.
"It's in the form of a buyer credit," explained Bull. "There is a max amount which will depend on several factors, like purchase price and prepaids." As an agent, she works with the lender to determine the exact numbers for each property.
Bull says that she and her clients are turning to buydowns, which are negotiated between buyer and seller, in cases where the properties aren't as competitive, don't have multiple offers, or if they're working with a motivated seller.
"Instead of negotiating something like a closing cost credit or negotiating on price, we might be negotiating something called a '2-1 buydown,'" she explained. This lowers the interest rate for the first two years of a loan. "For instance, the first year, if they were ordinarily going to get an interest rate of 6.5%, we can figure out what amount of money is needed to get them down to 4.5% that first year, and then the second year maybe it steps up to 5.5%. That can shave thousands of dollars off."
This could make sense for a buyer who predicts the first few years of ownership will be cost-heavy, and a lower rate could provide some cushion.
"It's not always something that you can negotiate, and it doesn't always make sense, but there are definitely situations where we're doing it because why not?" said Bull, adding that it's important to consider your priorities before doing so because you can't negotiate everything.
"If you have a seller that's willing to negotiate, then you can decide, 'Should I be negotiating a buydown? Should I be negotiating a credit? Should I be trying to get them to repair stuff at the property?' It's looking at the bigger picture and deciding, as a buyer, what would be most helpful for me at this point?"
