JACKSONVILLE, Fla. – First-time homebuyers can save thousands over the life of a loan by “buying down” their interest rate before closing, and consumers who want their cash to work harder are increasingly turning to high-yield savings accounts, local financial advisers said.
Justin Drost, who recently bought his first home in Arlington, said he benefited from a first-time homebuyer program that included down-payment assistance and help with closing costs. He warned other buyers to watch credit and large purchases during the year they plan to buy.
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“You don’t want to be applying for big lines of credit,” Drost said. “I’d say about two strong years of working hard and saving” helped him qualify.
Drost said one thing he wished he had known sooner: extra cash can be used to buy down the mortgage rate through the lender — a move that might have prompted him to save more before closing.
How buying points works Ashleigh Robinson, digital marketing manager for First Florida Credit Union, said paying for mortgage points — essentially prepaid interest — can be worthwhile if you plan to keep the loan long term.
“You just need to make sure that you are looking ahead of closing … so that you can get the lowest possible rate,” Robinson said. “Having the lowest rate possible is going to save you potentially thousands of dollars over the life of the loan.”
Robinson urged borrowers to weigh small rate reductions — even a quarter-point or a half-point — because they add up over a typical 30-year mortgage.
Common guidelines for first-time buyers
- Aim for a credit score of at least 620.
- Avoid large purchases, such as a car, in the year you apply.
- Don’t open major new lines of credit during the buying process.
- Maintain a steady work history.
Why high-yield savings accounts are popular Robinson also said she’s getting many calls about high-yield savings accounts, which offer interest rates well above the typical 0.05% offered by standard accounts.
“These high-yield accounts are vehicles for the average consumer to actually get a meaningful interest rate on their money,” she said. “It’s to grow while still maintaining a level of accessibility for when they need it.”
She recommended setting up automatic transfers — even modest amounts such as $50 per paycheck — so balances grow through compound interest. “You’re going to earn interest on your interest,” Robinson said. “That is going to help that account grow exponentially until it is a meaningful amount of money to help you reach your goals.”
Steps to get started Robinson advised consumers to track spending, cancel unneeded subscriptions and move whatever they can into a designated savings account. Start small if you must; even $10 or $20 a paycheck can build over time and be increased later.