As interest rates continue to rise in the United States, reaching its highest point since 2014, potential homebuyers are really starting to worry about how the rest of 2018 is going to work out for them during the home buying process. With higher than average home prices, inflation worries, and an unstable market it is easy to see why buyers are having doubts.
Luckily for borrowers there are other loan programs available for them to take advantage of during this time.
Fannie Mae and Freddie Mac
These programs were created by congress to improve the national housing finance system. Their goal is to provide “liquidity, stability, and affordability to the mortgage market.” They do this by purchasing mortgages from lenders. Fannie Mae and Freddie Mac will either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that may be sold. The lender can then use the cash earned by selling the mortgages to offer more loans. Expanding the pool of funds available for housing, Freddie Mac and Fannie Mae are able to help lower interest rates for borrowers.
FHA, USDA, VA Loans
These three loans are all loans that are backed by different departments of the Federal Government. When the government backs a mortgage loan, lenders are assuming less rick as they won’t experience a loss if you default on your mortgage. They all provide competitive interest rates, little or even no down payments and have lower closing costs than conventional loans.
There are limitations to all three of these loans. For example, a VA loan, backed by the U.S. Department of Veterans Affairs are loans that lenders can offer to help active-duty military members, veterans, and surviving spouses buy homes. While a USDA loan, insured by the U.S. Department of Agriculture, provide assistance to those buying a home in certain rural areas around the United States.
Most buyers are unaware that many states and communities offer grants and/or programs to help homebuyers. These grants can be used to make a dent in your down payment, especially if this is your first time buying a home. The Good Neighbor Next Door program is provided by the Department of Housing and Urban Development to those who are serving as law enforcement officers, firefighters, emergency medical technicians and teachers. HUD lists the properties eligible for this by each state and buyers must commit to making the home their primary residence for at least 36 months.
At a city or county level there are more options available to first-time homebuyers. They’re usually listed by availability on your state’s website. Most will even not require you to pay the grant back if you keep the home for a certain amount of time.
Even with interest rates on the rise, a good local lender should have plenty of information about ways to get loans or assistance with lower interest rates and help you close as quickly as possible.