The COVID-19 pandemic has impacted every family across the United States in terms of jobs, finances, travel and way of life. Buying a home is a huge financial undertaking and there are multiple factors you should consider when purchasing a new house for you and your family, especially amid a worldwide pandemic.
Potential buyers should consider these factors before taking the plunge to buy a home during the coronavirus outbreak:
- Interest Rates
Interest rates are at a historic all-time low, according to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage dropped to 2.71%, the lowest rate seen in over 50 years. The 15-year fixed-rate mortgage rates are also at an unprecedented low—2.26%—for the week ending December 3, 2020.
Conventional fixed-rate mortgages are the most common type of loan when buying a home. Fixed-rate loans mean you lock in your interest rate for the length of the loan and will make the same monthly payment throughout the entire term length. With interest rates at these historic lows, buyers should consider locking in the rate while they can.
- Real Estate Trends
Inventory is scarce right now due to the record low interest rates pushing people to buy homes. That means as buyer demand increases so will home prices. According to Joel Kan, Mortgage Banker Association’s associate vice president of Economic and Industry Forecasting, “Housing demand remains strong, and despite extremely tight inventory and rising prices, home sales are running at their strongest pace in over a decade.”
The National Association of Realtors (NARs) reports a 26.6% increase in sales from one year ago in October, and an increase of 4.3% from the previous month, totaling to a seasonally adjusted annual rate of 6.85 million in existing-home sales. Existing-home sales include condos and co-ops, in addition to single-family homes.
Housing inventory levels have continued to see a decline, both month-over-month and year-over-year, with a total inventory of 1.42 million, enough homes to last two and a half months at the current sales pace according to NARs. So while it may be a great time to buy with low interest rates, buyers may have a harder time finding the right home, especially in their price range.
NARs reports that the median existing-home price in October was $313,000, 15.5% more than the previous year ($271,100). Homes aren’t lasting long on the market either. In the same study, 72% of homes on the market that sold in October were on the market for less than 30 days. Buyers need to be ready to move quickly.
- Mortgage Pre Approval
If you’re a serious buyer, you’ll want to consider getting a mortgage pre approval , which may look a little different during the pandemic. It may not be possible to meet in person with a lender but potential buyers can look at their options and qualify online. If a buyer is in good financial standing— a steady stream of income, sizable down payment and good credit score—your options may not vary much from one lender to the next.
However, if you’re a first-time buyer, a buyer with bad credit or have another unique situation, there are lenders with special programs that may be able to help. Do your research to see if these options are available online or if you’d need to set up an in-person meeting with a lender.
Once you get your mortgage pre approval, the approval letters typically last from 60 to 90 days, but can differ by lender. Be sure to check the fine print on your offer. It’s important to consider this timing when buying a home, as you want to fall within the dates of the letter to get the same rates and terms that are offered.
- Consistent Stream of Income
One of the biggest pandemic factors in determining whether you should buy a home is your stream of income. Roughly 25% of U.S. adults either lost their job or had someone in their home lose their job this year. If you aren’t able to prove a steady stream of income and financial stability, it may be hard for you to get approved for a home loan, pay for a mortgage or cover the additional costs that come with buying a home. These include closing costs, mortgage insurance fees, property taxes and title fees. There are many fees that aren’t built into your mortgage loan, so it’s important to be aware of them. There may even be ways to reduce them or negotiate a different fee schedule.
- Post-Pandemic Factors
With news of several promising COVID-19 vaccines preparing for distribution next year, buyers should be aware of the possible impact this could have on the housing market. Buyers who have been waiting on the sidelines may flood the market as Americans see a semblance of return to normalcy. This also goes for sellers.
It’s possible we may see an influx of both buyers and sellers, causing a more competitive housing market—and the potential that home prices skyrocket to accommodate demand.
Buying a home before the end of 2020 or before the end of the pandemic (who knows when that will be) isn’t going to be the right move for everyone but will be for some. When making the final decision to purchase, consider the above factors and weigh the pros and cons of making such a huge financial decision amid a pandemic. If your job and income are stable and you’re in the market to buy, you may want to take advantage of the historically low interest rates now before rates increase and home prices continue to climb as the pandemic comes to an end.