Taking Advantage of the Low Interest Rates for First-Time Home Buyers
For the first time in real estate history, mortgage rates have dropped below 3% for a typical 30-year fixed rate. After the onset of COVID-19 in the United States, the economy suffered drastically and changed almost overnight. To help support the economy during this time, the Federal Reserve made some changes. One of these changes was lowering mortgage rates. Now, homeownership is more affordable than ever, and many people are taking advantage of it. A lot of current homeowners are looking at ways to re-finance their mortgage to take advantage of low interest rates, but first-time home buyers should also keep their options open. There are many benefits to owning a home and with such low rates, it can be hard to surpass this opportunity. In this article, we’ll go over what you need to know about taking advantage of the low interest rates for first-time home buyers.
Types of First-Time Home Buyer Loan Assistance
A lot of hesitation for first-time home buyers comes from the initial investment. It can be difficult to come up with a down payment without feeling at least a little bit of anxiety along the way. Luckily, there are plenty of different types of first-time home buyer loans that can help you along the way.
First, you can look into getting help with your down payment. There are a few options—some lenders reward first-time home buyers with down payments as low as 3% instead of the standard 20%. Look at all of your options before figuring out what’s best for you, but just know that you do have choices. You can also look at getting down payment assistance (DPA) through different types of loans. You can also get your DPA through grants if you’re eligible.
To get the most out of your home buying experience, make sure you do thorough research regarding your tax credits. If your mortgage is lower than $750,000 you can deduct your mortgage insurance cost from your federal taxes.1
There are also ways you can get help with the closing costs. Closing costs are usually about 3% – 6% of the total coast of your home loan and will need to be paid upfront.1 There are grant options to help as well as private programs if you need them. Just make sure that you look into all of the assistance you’re eligible to receive prior to signing anything. If you’re willing to put in the extra effort, you can end up saving thousands.
Advantages of Low Interest Rates
Low interest rates make buying your first home easier and less stressful over time—especially for first-time homebuyers. You’ll have stronger buying power, lower monthly mortgage payments, be able to pay off your debts faster, and subsequently invest more for your future.
Stronger Buying Power
Almost all buyers take out a loan or mortgage to purchase their homes. The higher your interest rate, the more you’ll have to pay each month in fees. Depending on your loan amount, this means you’ll need to make sure and commit to a lower priced home so that you can afford your monthly mortgage payments, which include interest rates. With lower interest rates, you’ll have stronger buying power and will be able to afford housing that would have otherwise been out of your budget. You’ll have more money to put toward your home payments and less of a monthly financial burden from interest. If you find your dream home, now is a great time to use the strong buying power and make a move.
Lower Monthly Mortgage Payments
For some, stronger buying power doesn’t make a big difference because they simply can’t afford high mortgage payments. With lower interest rates, you can finally find a home within your budget. If you’ve always been a renter, lower interest rates can make monthly mortgage payments more comparable to your rent. There are plenty of awesome mortgage calculators for you to play around with and get a better idea of what you’d be paying, but always confirm it with your real estate agent and/or lender to make sure. Regardless, lower interest rates mean lower monthly mortgage payments so you can keep more money in your pocket while growing your equity.
Pay Off Debts Faster
For those who have been hesitant to buy a home due to their current debt-load, low interest rates can help you pay off debts faster and move into your first home without any extra financial strain. Right now, interest rates are at one of the lowest they’ve been in years. This saves you money on your monthly mortgage payment, which you can then, put towards paying off your current debts—credit cards, student loans, etc. While a lot of people get nervous about buying a home with lots of debt to their name, it doesn’t always have to be a risk. You can do both, especially now. Thanks to lower monthly mortgage payments, you’ll able to continue chipping away at your debt in the comfort of your own home.
With lower interest rates, you’ll be able to invest more money in other accounts to help you grow your portfolio and increase your value. Contributing to investments can help you secure your future, but many people put it off because of high mortgage payments, bills, and everyday life. Low interest rates can help you lighten your financial burden so you can set yourself up for future success.
A Few Mistakes to Avoid
Even though interest rates are at an all-time low, there are still mistakes that can be made during the home buying process. In order to reap all of the benefits and avoid problems, it’s important to take your time, understand your budget, and be smart.
First and foremost, you need to understand what you can and cannot afford. Just because interest rates are low doesn’t mean that you should buy a house that costs more than you can afford. This is only going to cause financial problems in the future and will likely be accompanied by a lot of unnecessary stress or, worst case scenario, foreclosure. Make sure that you talk to more than one lender to get an idea of your options and get the best rate. The more lenders you talk to, the more you’ll understand your options.
Once you decide on a lender, apply for a mortgage. Do not start looking for a house before you apply for a mortgage. This will give you unrealistic expectations and cause you to exceed your budget. Only looking at houses that fall within your budget is the best way to avoid disappointment and financial problems. If you do see a home that you like, take some time to really think about it. A lot of first-time home buyers make decisions based on emotion, which causes problems in the end. Make a list of the things that are considered a must-have in your home and things that you want. Take it to all of your showings and go through your list. Also keep an eye on the details and ask questions about any problems, get the proper inspections, and don’t be afraid to open doors, closets, and cupboards. You want to fully understand the state of your potential home before making an offer.
Finally, make sure that you fully understand how much it costs to buy a home. There are a few hidden costs of homeownership that people don’t plan for and should be incorporated into your original budget. To learn more about the hidden costs of buying and owning a home, check out this article.
By looking at your options in terms of loans and avoiding some of the common mistakes that first time home buyers make, you can take advantage of the current low interest rates and unlock the door to your first home. First Star Realty is committed to providing five-star realtor services to Northwest Arkansas. We’ll work with you throughout the entire buying or selling process to give you the peace of mind you need during such a life-changing experience. At First Star Realty, first time home buyers can rest assured that they’re going to be taken care of. In fact, our philosophy is that our clients always come first, which is why we only measure achievements through client satisfaction. If you’re ready to buy or sell a home, contact us today. Our team of highly seasoned real estate professionals is dedicated to providing exceptional, personalized service to all of our clients. Call us today at 479-267-1600 or fill out a contact form on our website.