"Lower interest rates are still extremely attractive, and we anticipate they will continue to stay that way," said David Garcia, Albuquerque regional manager at BOK Financial Mortgage. Mortgage rates dropped to below 3% in July 2020 for the first time ever, flooding the market with buyers eager to take advantage of historically low rates.

Some experts have speculated that Secretary of the Treasury Janet Yellen's policies to boost the economy would also raise the threat of inflation—and both can have an effect on interest rates. "Whether it reaches a peak where mortgage interest rates will increase remains to be seen," said Garcia. "Ultimately, rates will likely remain low."

Low inventory challenges buyers

With mortgage rates so low, new challenges have emerged for home buyers, including a shortage in inventory. The supply of homes for sale fell almost 30% from February 2020 to February 2021, which was the largest annual drop ever.

"What we've seen is mortgage rates decrease, which causes a rise in home buying and then a shortage of available homes to buy," Garcia said. "These factors help drive home prices up. But low interest rates may help offset some of the increase in home prices, as well."

At the end of January, home prices had increased by 11.2% over the previous January, which was the fastest pace in 15 years (since 2006), according to the S&P CoreLogic Case-Shiller index. According to a report from the National Association of Realtors, the U.S. median home price was $313,000 in February this year, up 15.8% from this time last year.

One of the biggest hurdles to home buying this spring is likely to be the lack of inventory across much of the country. And high costs of materials and pandemic delays are slowing new construction, contributing to the decline in inventory.

Lenders change approval requirements

In addition to the demand for refinancing and new mortgage loans, the pandemic has prompted changes in lending policies.

"Lenders have updated guidelines for how we qualify borrowers affected by the pandemic," Garcia said. For example, those in the restaurant business who have spent the last six months off work may see changes in how they qualify to buy a house as a result of a loss of income.

"If you've been affected by the pandemic, it's critical to work with a reputable lender that can help you navigate the new guidelines in place as a response to the effects of the pandemic," he said.

But what are lenders concerned about? Specifics around year-to-date income and additional requirements for those borrowers who are self-employed, such as income documentation that proves cash flow.

To help overcome some of these challenges, Garcia recommends knowing what to expect before pursuing a loan—even if you're not a first-time homebuyer. "It's important to check with your lender to make sure things haven't changed since you last bought a home," he said. "The challenges we're seeing aren't just for the first-time homebuyer to consider."

Here's how to prepare for this new home-buying experience:

• Plan for a larger-than-usual down payment or talk to a mortgage banker about low down payment loan program options to help offset higher home prices.
• Talk to your realtor to decide whether an increase to your offer makes sense for the home you're looking to buy.
• Make sure your paperwork is in order and updated when speaking with your lender for pre-qualification (the industry is seeing shorter windows for expiration of key documents).
• Understand how much house you can afford by using an online calculator.

So, what's next for spring homebuyers?

"There's still a large demand for home buying, but our biggest limitation is the inventory," Garcia said.

For homeowners, refinancing is still a good way to save money on your loan. Garcia said there has been big increase in refinancing from 30-year fixed to 15-year fixed loans to take advantage of the low interest rates. "We've seen a record year for refinancing, and we expect this trend to continue in the coming months."