The COVID-19 pandemic continues to have a severe impact on local communities and the U.S. economy. Financial markets are still finding it hard to navigate headwinds and real estate is no exception. But amidst the chaos and uncertainty first-time homebuyers can find a silver lining in a seemingly unscathed real estate market in Des Moines, Iowa.

The Des Moines housing market saw significant growth in 2020, so much so that it was designated as being one of the top 10 real estate markets in the United States by the National Association of Realtors2.

Many of the driving factors making Des Moines a great place to live include is its low unemployment rate and overall affordability. Sales in November alone jumped almost 23% compared to the same period in 20192.

But if you are among the 31% of homebuyers that are first time homebuyers it can be hard to figure out just how to go about buying your first home in the Des Moines market1. Not only is the process a bit involved, but demystifying quirks about the purchase process can also be a bit overwhelming.

One of the best ways to feel confident about buying your first home is to work with a preferred lender such as Louis Wickett with Key Mortgage Group at Homeside. Louis has help hundreds of borrowers just like you buy their Des Moines dream home.

Louis and his team have also identified a few key things that can help make buying a house easier than ever. Here are a few secret tips and tricks to consider if you are a first-time home buyer looking to call Des Moines home.

1. Capitalize on Low Mortgage Rates

In early December 2020, the Federal Reserve announced that it planned to keep the benchmark interest rate low for the foreseeable future. In 2020 the average U.S. 30-year fixed rate mortgage hit a record low 16 times, with the most recent being 2.67%3.

Locking in a low mortgage rate can be extremely beneficial when purchasing a new home. For one you could save thousands of dollars in interest over the term of your loan. Since mortgages can span anywhere from 10-30 years, that means more money in your pocket that can be reinvested in your house or used elsewhere in your budget.

Similarly, a low mortgage rate means more purchasing power. Consider the fact that the median home price for properties in Des Moines was $215,000 for the month of November.

Assuming you wanted to buy a property at that price point and finance it using a 30-year fixed rate mortgage at 2.67% with 20% down. Your loan amount would be approximately $172,000 and your monthly principal and interest payment would be roughly $675/month.

Now consider if you wait to buy that same home but mortgage rates have increased by 1.00%. The new rate is now 3.67%. Keeping your payment the same the new maximum loan amount would be around $151,500. That is a decrease in your purchasing power by roughly $20,500.

Clearly, mortgage rates are bottoming meaning there is nowhere to go but up. Buying now while mortgage rates are low may be the strategic financial play.

2. Research Down Payment Assistance Programs

One of the largest hurdles for first-time homebuyers is saving up enough money to cover the down payment on a new home. Buying a house can certainly be expensive. To make it a bit easier, make sure to research down payment assistance programs that may be available to you as a first-time homebuyer.

For example, the Iowa Finance Authority’s FirstHome program is available to first-time homebuyers that meet specific eligibility criteria. This program provides qualified borrowers with a $2,500 grant that can be used toward the down payment or closing costs of a new primary dwelling4.

Homes for Iowans and the Military Homeownership Assistance Program are two other offerings that you may also be able to take advantage of. These programs, among others, are great resources that can lower the burden of coming up with a hefty down payment and ultimately make buying your first home much easier.

3. Consider Homes That Need Renovations

Most first-time homebuyers visualize their first home as a turn-key house that is completely perfect, with little or no need of work. In reality, you will find that many existing homes on the market have their share of flaws.

No home is perfect, in fact you will probably find every home you see will have a feature you will want to update or change. That is to be expected as everyone has different tastes, wants, and needs.

But what if you could buy your first home and completely redesign it to your specifications? Competition and demand for homeownership is constantly putting upward pressure on current home prices. One way to undercut the competition is by looking at homes not on their radar; homes that are not necessarily move-in ready.

Older homes, foreclosures, as well as dwellings with significant deferred maintenance may seem undesirable on the surface but can oftentimes be a diamond in the rough. These properties can often be purchased for a fraction of the price of standard, move-in ready homes. They just need a little tender love and care, and the best part is that there are mortgage loan programs available just for that.

Renovating a new home can seem like a major undertaking, however many lenders can now offer you a Fannie Mae HomeStyle Renovation mortgage that allows you to finance your first-home purchase while financing a wide array of repairs, upgrades, and updates, all in one conventional mortgage product5.

Another product your lender may be able to recommend is FHA’s 203(k) mortgage program. This government-sponsored program has softer credit eligibility requirements and has similar attributes to Fannie Mae’s HomeStyle offering6.

Both mortgage programs have their share of pros and cons. For example, HomeStyle permits manufactured housing5. Make sure to discuss with your lender which loan program might be best for your situation.

Louis and his team at Key Mortgage Group at Homeside can help identify the right mortgage program that meets your needs at the right price point.

4. Short Cash? Ask for a Gift

Newlyweds or recent college graduates are often seen as the quintessential first-time homebuyer, but that is not always the case. The truth is that regardless of your marital status or educational tenure, saving up enough money to buy your first home can be quite a challenge.

One thing most new buyers do not realize is that your entire down payment can come from someone else. Today, most lenders will allow you to obtain a personal gift from a family member or relative that can be used to cover your entire down payment as well as the closing costs for your new Des Moines home.

While there are some additional requirements if you decide to purchase a property that has more than 1-unit, the utilization of gift funds can add increased flexibility to the purchase process.

In general, gifts funds are eligible to be used when you and the donor have one of the following relationships and the donor is not affiliated with another interest party involved in the transaction7:

● a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or

● a fiancé, fiancée, or domestic partner

5. Save Money (and Time) With a Property Inspection Waiver

If you have preliminarily discussed purchasing options with a lender then you might be aware that as part of financing a new home purchase your mortgage application will need to be underwritten. The underwriting process is often the most time-consuming process when buying a piece of real estate.

Specifically, underwriters will want to order and review an appraisal report to determine the value of the subject property is sufficient to collateralize the loan.

One way to possibly circumnavigate needing an appraisal is by being granted and utilizing a property inspection waiver. Property inspection waivers (PIW) are available to all lenders using Fannie Mae or Freddie Mac’s automated underwriting systems.

Applications that receive a property inspection waiver are not required to obtain an appraisal, but note that you can still request a formal appraisal inspection. Keep in mind the average cost of an appraisal report is between $300 and $4508.

So how do you obtain a property inspection waiver? There are a lot of factors at play so even if you meet the criteria, you still may not receive a waiver. That said you can certainly make the odds work in your favor.

One-unit purchase transactions (including condos) where you are putting 20% or more down and that meet all other underwriting criteria have a strong likelihood of becoming eligible for a property inspection waiver (PIW)9.

Still have questions about the home buying process? Louis Wickett with Key Mortgage Group at Homeside can answer all your purchase related questions.

Give him a call at 51-238-9949 or emailhim at lwickett@gohomeside.com

Sources

1 National Association of Realtors. (2020, November 11). Quick Real Estate Statistics. Retrieved January 4, 2021, from https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics

2 Des Moines Area Association of Realtors. (2020, December 10). November Sales Up 22.9% – Des Moines named a Top 10 Market. Retrieved January 4, 2021, from https://www.dmaar.com/news/blog/november-sales-up-229—des-moines-named-a-top-10-market

3 Glaze, T. (2020, December 31). Mortgage rates remain at record-low levels. Retrieved January 4, 2021, from https://www.housingwire.com/articles/mortgage-rates-remain-at-record-low-levels/

4 Iowa Finance Authority. (2020, July 23). Down Payment Programs. Retrieved January 4, 2021, from https://www.iowafinance.com/homeownership/down-payment-programs/#:~:text=FirstHome Options&text=The down payment assistance grant,down payment and closing costs.&text=The 2nd Loan program offers,mortgage is paid in full.

5 Fannie Mae. (2020, January 09). FAQs: HomeStyle Renovation. Retrieved January 4, 2021, from https://singlefamily.fanniemae.com/learning-center/originating-and-underwriting/faqs-homestyle-renovation

6 HUD. (n.d.). 203(k) Rehab Mortgage Insurance: HUD.gov / U.S. Department of Housing and Urban Development (HUD). Retrieved January 4, 2021, from https://www.hud.gov/program_offices/housing/sfh/203k/203k–df

7 Fannie Mae. (2020, October 07). Selling Guide: B3-4.3-04, Personal Gifts. Retrieved January 4, 2021, from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1032991211/B3-4-3-04-Personal-Gifts-10-07-2020.htm

8 Chang, E. (2019, August 13). How Much Does A Home Appraisal Cost? Retrieved January 4, 2021, from https://www.bankrate.com/mortgages/how-much-does-an-appraisal-cost/#:~:text=How much do appraisals cost,detail involved in the appraisal.

9 Fannie Mae. (2020, June 17). Appraisal Waivers – FAQs. Retrieved January 4, 2021, from https://singlefamily.fanniemae.com/media/9456/display