How Rising Interest Rates Impact Homebuyers & Programs to Help

Unless you’ve been living under a rock, you already know that mortgage interest rates have risen significantly over the past year. In some areas, they’ve even doubled, making homeownership more expensive and affecting your purchasing power as a buyer. But before you start to panic, take a deep breath—there are still plenty of programs designed to help you afford a home, even in a high-rate environment.

How Higher Interest Rates Impact Your Buying Power

Interest rates have a direct impact on your monthly mortgage payment. A higher rate means you may qualify for a lower loan amount, as more of your payment goes toward interest rather than the principal. For example, a 1% increase in interest rates can reduce your purchasing power by about 10%—meaning a home you could afford last year might now be out of reach.

While this can feel discouraging, there are ways to combat higher rates and still get into a home that fits your needs and budget.

Programs That Can Help You Buy a Home

1. Down Payment Assistance Programs

Many buyers worry about affording both a higher interest rate and a hefty down payment. Fortunately, there are state and local programs that offer financial assistance:

• Iowa Finance Authority (IFA) Programs: Provide grants or second loans for down payment and closing costs.

• Neighborhood Finance Corporation (NFC) Loans: In certain areas, buyers may qualify for a $10,000 forgivable loan to help cover upfront costs.

2. Temporary & Permanent Rate Buydowns

A rate buydown allows you to reduce your mortgage interest rate—either temporarily or permanently—by paying upfront points at closing.

• 2/1 Buydown: Lowers your rate by 2% the first year, 1% the second year, and then settles at the original rate.

• Permanent Buydown: If you have extra cash, you can pay points to secure a lower rate for the life of your loan.

3. Adjustable-Rate Mortgages (ARMs)

An ARM starts with a lower interest rate for a set period (such as 5, 7, or 10 years) before adjusting based on market rates. If you don’t plan to stay in your home long-term, this could be a strategic way to get a lower initial rate.

4. Seller Concessions & Lender Incentives

• Some sellers offer concessions to help buyers with closing costs or rate buydowns.

• Some lenders have special incentives or grant programs that help reduce monthly payments.

5. Government-Backed Loans

• FHA Loans: Allow for low down payments (as little as 3.5%) and more lenient credit requirements.

• VA Loans: Offer zero down payment for eligible veterans and active-duty service members.

• USDA Loans: Provide 100% financing for homes in designated rural areas.

Final Thoughts

Yes, interest rates are higher than they were a year ago—but that doesn’t mean homeownership is out of reach. There are still plenty of creative financing options and assistance programs that can help you get into the home you want without breaking the bank.

If you’re thinking about buying a home but aren’t sure how to navigate the current market, The Murrey Group is here to help! Let’s explore your options and find a plan that works for you. Contact us today!