Interest rates are at historic lows, making it the perfect time to buy that dream home … or maybe not. There’s still that pesky pandemic thing causing a lot of uncertainty.
If you’re thinking of jumping in the housing market, be sure you know what to expect in this new normal. Here’s advice from Knowledge of Financial Health, or KOFE, a leading financial education provider and Colonial Life partner.
1. Be prepared for the process to take longer.
Even in normal circumstances, finding a right home can take weeks or months, depending on your agent and how prepared you are when you go house hunting. Then it takes about 30–45 days to close on a home once you make an offer.
Now, though, furloughs and social distancing restrictions may increase the amount of time it takes you to a close on a home. There may be delays in inspections and appraisals. And furloughs at financial institutions may affect how quickly you can get approved for a loan.
2. Make sure you’re mortgage-ready.
The housing market crash of 2008 left many lenders and loan investors gun-shy of an economic downturn. As a result, many lenders are tightening lending restrictions, limiting loan approvals to only the most qualified buyers. One way to ensure you can meet their requirements is to consult with a HUD-certified housing counselor.
“Homeownership is still within the reach of most people with sufficient income, capital available for a down payment, and good credit scores,” says Barry Rothman, a housing counseling program manager with Consolidated Credit. “An experienced housing counselor can help you determine if you’re mortgage-ready and what type of loan and amount you may be able to qualify for.”
3. Shop around to know your home loan options.
This is more important than ever in a tight lending market. Check with your financial institution, other national and local banks and credit unions, and online mortgage lenders. You can submit multiple applications within 45 days without negatively affecting your credit. This will allow you to find the right lender and loan.
4. Be conservative when estimating the payments you can afford.
With today’s economic uncertainties, experts advise your principal, interest, taxes and insurance should total no more than 25% to 28% of your post-tax monthly income. This is especially true for homebuyers who have other debts, such as student loans, car payments, and credit card debt. Keeping your housing cost in check will still allow you the freedom to enjoy life, travel, and save for the future.
5. Get a preapproval letter.
Home sellers want to know a buyer can really afford their home. If they’re getting multiple offers, they’re going to go with the most qualified buyer among them. Having a preapproval letter from your lender in hand will show sellers you’re fully qualified to buy their home.
6. Find the right real estate agent.
You don’t have to work with a real estate agent to buy a home, but it can be highly beneficial, particularly for first-time buyers in a seller’s market.
“Working with a reputable buyer’s agent is critical to understanding the local market,” says Bill Gassett with RE/MAX Executive Realty. “An exceptional agent can provide the advice necessary to put you in the best position to be the winning bidder.
7. Maintain social distancing while you buy.
Social distancing guidelines may affect your ability to tour homes and attend open houses. Most buyers still want to see homes in person, but consider taking advantage of virtual options for many stages of the homebuying process. For example, viewing the home online first can help you narrow your search. You also may be able to review and sign your contract in an online meeting room, and even close virtually with some companies.
But don’t skip on due diligence to make sure you’re getting the right property — including a home inspection. It’s the inspector’s job to fully inform you of the condition of the house to make you completely aware of everything they can possibly see.
8. Consider getting a COVID-19 rider.
A COVID-19 rider ensures all parties understand how to proceed if COVID-19 affects the transaction — and it’s becoming more commonplace to attach them to real estate purchase transactions, according to David Reischer, attorney and CEO of LegalAdvice.com.
“The language in the rider protects both the buyer and seller in the event circumstances change due to COVID-19,” Reischer says.
9. Ask about getting a homebuyer rebate at closing from your agent.
A homebuyer rebate can save you money at closing and increase funds available for repairs and improvements. “In 40 states, agents are allowed to rebate part of their commission during closing to their client,” says Ben Mizes, cofounder and owner of Clever Real Estate. The rebate is typically capped at 1% — on a $200,000 home, that’s $2,000.
10. Be ready for more change.
No one can say for certain what will happen in the fall or even in the next few weeks: reinstated stay-at-home orders, even higher unemployment, pay cuts or furloughs. So homebuyers need to be especially careful when choosing a home and a mortgage.
“Be extra aware of your job security and even the security of your current salary,” says David Rae, a certified financial planner and accredited investment fiduciary. “If you have the income and down payment, go for it and buy a house now. If not, you may be better off cleaning up your finances or looking for a home that fits your income and lifestyle.”