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Here’s how to afford your first home with a lower down payment

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Pittsburgh Central Business District

J. Altdorfer Photography | Getty Images

After the bidding wars during the pandemic, demand for home purchases plummeted amid higher mortgage interest rates. This dynamic has made some markets more attractive to 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 metropolitan areas with more affordable rent, less competition and a higher inventory of homes for sale.

“The affordability hurdle is very difficult,” said Matt Hackett, chief operating officer at Equity Now, a mortgage lender in Mamaroneck, New York, that operates in five states.

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One of the biggest challenges has been a sharp rise in interest rates in a short period of time, said Erica Davis, branch manager for Guild Mortgage in Myrtle Beach, South Carolina.

Mortgage interest rates have more than doubled since early January after a series of hikes by the Federal Reserve to curb inflation in 2022. These rates have softened recently, hitting 6.41% last week.

Meanwhile, median home sale prices are higher year over year, hitting $454,900 in the third quarter of 2022, according to the Federal Reserve Bank of St. Louis.

Still, some markets may be more affordable for budget shoppers, according to Zillow’s report.

10 best markets for first-time home buyers in 2023

These are the top metros for first-time home buyers in 2023 based on mortgage and rent affordability, housing supply and share of listings with a price cut, according to Zillow.

  1. Wichita, Kansas
  2. Toledo, Ohio
  3. Syracuse, New York
  4. Akron, Ohio
  5. Cleveland
  6. Tulsa, Oklahoma
  7. Detroit
  8. Pittsburgh
  9. Saint Louis
  10. Little Rock, Arkansas

First-time home buyers may have a mortgage ‘knowledge gap’

While affordability may be a concern, experts say first-time home buyers may have more options than they realize.

“First-time home buyers almost always have this lack of knowledge,” Hackett said. “They don’t really know how much they can afford, and they don’t really know how much they need for a down payment.”

For example, many first-time home buyers aren’t familiar with veterans’ mortgages, which don’t require a down payment, or Federal Housing Administration loans with 3.5% down payment, he said. -he declares.

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 higher mortgage insurance and interest rates, which can be lowered later, experts say. You will also have a larger monthly payment with a larger mortgage.

First-time home buyers almost always have this lack of knowledge.

matt hacket

Head of Operations at Equity Now

Davis said lower down payment mortgages could also preserve savings for future home expenses. “There’s less stress if they can close and still have money in their pocket,” she said.

Depending on your income and location, you may also qualify for first-time homebuyer grants or programs run by state and local governments to help cover your down payment and closing costs. “It’s definitely a good option,” Hackett said, urging buyers to speak with a local mortgage expert familiar with programs in their area.

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