Here’s how to afford to buy your first home with a lower down payment
The Central Business District of Pittsburgh
J. Altdorfer Photography | Getty Images
After bidding wars during the pandemic, demand for home purchases has fallen amid higher mortgage interest rates. That dynamic has made some markets are more attractive for first-time home buyers for 2023, according to a Zillow report released this week.
The real estate site found the “best opportunity” for first-time buyers in metros areas with more affordable rent, less competition and a higher inventory of homes for sale.
“The affordability hurdle is very tough,” said Matt Hackett, manager of operations at Equity Now, a mortgage lender in Mamaroneck, New York, that operates in five states.
More from Personal Finance:
Millennials may not inherit as much as they hope in the ‘great wealth transfer’
Santa Claus rallies are a ‘meaningful’ trend. What that means for investors
How to keep required minimum distributions invested in a down market
One of the biggest challenges has been a sharp increase in interest rates within a short amount of time, explained Erica Davis, producing branch manager at Guild Mortgage in Myrtle Beach, South Carolina.
Mortgage interest rates have more than doubled from early January after a series of hikes from the Federal Reserve to curb inflation in 2022. These rates have recently softened, reaching 6.41% last week.
Meanwhile, median home sales prices are higher year-over-year, reaching $454,900 during the third quarter of 2022, according to the Federal Reserve Bank of St. Louis.
Still, some markets may be more affordable for buyers on a budget, Zillow’s report shows.
10 best markets for first-time home buyers in 2023
These are the best metros for first-time home buyers in 2023 based on mortgage and rent affordability, housing supply and the share of listings with a price cut, according to Zillow.
- Wichita, Kansas
- Toledo, Ohio
- Syracuse, New York
- Akron, Ohio
- Cleveland
- Tulsa, Oklahoma
- Detroit
- Pittsburgh
- St. Louis
- Little Rock, Arkansas
First-time buyers may have mortgage ‘knowledge gap’
While affordability may be a concern, experts say first-time home buyers may have more options than they expect.
“First-time homebuyers almost always have that knowledge gap,” said Hackett. “They’re not really sure how much they can afford, and they’re not really sure how much they need for a down payment.”
For example, many first-time home buyers don’t know about mortgages for veterans, which don’t require a down payment, or Federal Housing Administration loans with 3.5% down, he said.
You may also qualify for so-called conventional mortgages, backed by Fannie Mae or Freddie Mac, with down payments as low as 3%.
However, loans with a smaller down payment come with mortgage insurance and higher interest rates, which may be reduced later, experts say. You’ll also have a bigger monthly payment with a larger mortgage.
First-time homebuyers almost always have that knowledge gap.
Matt Hackett
manager of operations at Equity Now
Davis said lower down payment mortgages may also preserve…
Read More: Here’s how to afford to buy your first home with a lower down payment