How to Get Creative When Financing a New Home  

1.17.2023 | Category: Article

There’s no question that the housing market can be a little tough to predict these days. With inventory still low, home prices still high and rates changing often, it can be hard to know when buying a home is the right time.

Fortunately, Mutual of Omaha Mortgage has been hard at work finding solutions to fit your financial needs. Here are four loan products that might help you get creative with financing your new home in 2023.

Use a Lock and Shop Program

A lock-and-shop mortgage program is a type of mortgage program that allows borrowers to lock in their mortgage interest rate while they shop for a property. This can protect borrowers from potential interest rate increases during the home-buying process.

To secure a lock-and-shop mortgage, borrowers should expect to still go through much of the lending approval process, including a credit check, proof of savings, and an application. With a lock-and-shop mortgage, however, many borrowers do much of the paperwork ahead of finding the perfect home in order to lock in the rate.

The pros of a lock-and-shop mortgage include the certainty of knowing exactly what the rate will be as you house shop. This can give you a precise idea of how much home you can really afford. On the other hand, if rates go down, you are locked in unless there are terms and conditions already negotiated by your lender. Be sure to check with your lender before you commit.

Consider a 2-1 Buydown Mortgage

A 2-1 buydown mortgage is a type of mortgage in which the interest rate is reduced during the first two years of the loan term. This type of mortgage can be beneficial for borrowers because it can provide a lower monthly payment during the initial years of the loan, which can make it easier for them to afford the mortgage.

Here's how a 2-1 buydown mortgage works: when the loan is first issued, the borrower's interest rate is reduced by a certain amount, typically 2 percentage points. This lower interest rate remains in place for the first two years of the loan term. After that, the interest rate gradually increases to its original level over the next two years.

Overall, a 2-1 buydown mortgage can be a good option for borrowers who want to lower their monthly payments during the early years of their loan. It can also be a useful tool for borrowers who expect their income to increase over time, as the higher interest rate in the later years of the loan may not be as much of a burden.

Weigh the Pros and Cons of an Adjustable Rate Mortgage (ARM)

 An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate on the loan is periodically adjusted based on a pre-determined index. According to Consumer Finance Protection Bureau, the index is a benchmark interest rate that reflects general market conditions and the margin is a number set by your lender when you apply for your loan. The index and margin are added together to become your interest rate when your initial rate expires.

With an ARM, the rate can stay the same for roughly the first year or two, and then it begins to adjust periodically. The initial interest rate on an ARM is often lower than the interest rate on an average fixed-rate mortgage. This can result in lower monthly payments for the borrower during the initial period of the loan.

However, ARMs can be more complex than fixed-rate mortgages, as the interest rate can change over time. This can make it difficult for borrowers to understand the terms of their loans and predict their future monthly payments.

Overall, an ARM can be a good choice for borrowers who are confident that they will be able to pay off their loans or refinance within a relatively short period of time and who are willing to take on the risk of rising interest rates.

Research Down Payment Assistance Programs

 Down payment assistance programs are programs that provide financial assistance to help homebuyers with the down payment and closing costs associated with purchasing a home.

These programs are typically offered by state or local governments, or by nonprofit organizations, and they can provide financial assistance in the form of grants, low-interest loans, or other forms of support.

The specific requirements and terms of down payment assistance programs can vary, so it's important to research the programs that are available in your area and to carefully review the terms and conditions before applying.

In general, down payment assistance programs can help make it possible for more people to become homeowners, and they can be a valuable resource for first-time homebuyers or others who may have difficulty affording the upfront costs of buying a home.

Take Advantage of MORE Cashback Rewards

Mutual of Omaha Mortgage created a program that connects home buyers and sellers with experienced local real estate agents nationwide with an incentive to earn cashback on your new home purchase or sale.

To take advantage of this program, borrowers work with a qualified local real estate agent who is part of Mutual of Omaha Mortgage's trusted realtor network, at no cost to them. Qualified borrowers can earn a 19% (non-veteran) or 21% commission rebate when they work with a MORE Rewards agent.*

You can calculate your estimated cashback MORE reward by entering the purchase price o the homes you’re interested in, the commission charged by your real estate agent and your veteran status with Mutual of Omaha Mortgage.

Interested in learning more about your home loan options? Contact Mutual of Omaha. Our loan specialists can help you get the creative juices flowing so you can get into your new home in the new year.