If you’re thinking of buying a home, now is a great time to do it. Despite the arrival of a vaccine, the COVID-19 pandemic is far from over and mortgage rates are among historical lows.
Rates are expected to rise modestly in 2021 but remain notedly low, according to Freddie Mac. For example, the 30-year fixed-rate mortgage rate was 2.77% as of Jan. 21. This, combined with a desire for more space or a change of scenery amid the ongoing pandemic, can make now the right time to put down roots.
“With record-low mortgage rates and some of the best mortgage options available, now is one of the best times to purchase a home,” said Jason Gelios, a realtor in Southeast Michigan. “We really did not see a slow down during the pandemic, yet some homeowners were still hesitant to list their home. What this means is inventory will rise, making more homes available.”
Gelios said sellers in his local area of Southeast Michigan that were previously hesitant to put their homes on the market are now listing them due to the multitude of buyers and low rates.
“Even with the hyperactive market leaning more towards the home seller, a patient and laser-focused home buyer could snag a great home at a great rate,” Gelios said. “Even though home prices are higher in this market, the low rate will make up the difference in terms of savings on the monthly payment.”
This can allow you to get a home at a lower monthly payment than originally intended or even increase your purchasing power.
Gallery: Buying a Home in 2021? Here’s What You Need To Know (GOBankingRates)
Now that the new year is in full swing, you’re ready to start shopping for a very big purchase — a new home. This is a major move, whether you’ll be a first-time homebuyer or are planning to trade up from your existing home, you want to be as informed as possible.
The 30-year fixed-rate mortgage rate tumbled to a record low 2.79% during the week of Jan. 14, according to Freddie Mac. While rates are expected to experience a moderate rise this year, they will remain low to encourage homebuying and refinancing.
Along with low rates comes a highly competitive real estate market, as the ongoing COVID-19 pandemic has caused many people to relocate or seek out more spacious properties in their current area. For example, homes spent an average of 66 days on the market in December 2020, which is a 16% decline from one year earlier, according to Realtor.com. Listing prices were also up 13% to $340,000, while the number of active listings plummeted 40%.
First and foremost, buying a home during the COVID-19 pandemic requires you to take extra safety precautions. Paul Welden, a Phoenix area realtor with the HomeSmart Realty Group, advises buyers to wear appropriate PPE when viewing a home.
He noted that everyone has their own level of acceptable safety measures regarding COVID-19, so it’s important to be considerate.
“Respect for other people’s well-being is important,” Welden said. “Your actions can and usually do have a direct impact on other people[‘s] lives.”
Purchasing a home is a major life event, so don’t rush it. Getting discouraged and giving up too easily or settling for a property you don’t really want is something you’ll regret.
“Buying a home takes time and you may not find your ideal home right away,” Welden said. “In a normal real estate market, it could take maybe one to two weeks to find the right home, but in a seller’s market, it could take three-plus months.”
There’s no such thing as the perfect home, according to Welden.
“Even if you build a custom home, there will be things you wish you could change,” he said. “So, be willing to compromise on some things that you want but may not need.”
However, two things he doesn’t recommend compromising too much on are location and schools. Bottom line — before starting your search, make a list of nonnegotiable items, so you don’t lose track of your top priorities.
Searching for a home amid a bustling sellers’ market means you’ll likely have plenty of competition, so your finances need to prove you’re a solid buyer.
“Arm yourself with a current pre-qualification from [a] reputable lending institution,” said Darrin Q. English, senior community development loan officer at Quontic Bank. “Pre-qualifications are usually good for 90 days before they will need to be updated.”
He also recommends getting your credit scores as high as possible by keeping your revolving debt — i.e., credit card balances — low and ensuring all installment debts are paid on time.
“Save the adequate down payment and closing cost prior to making an offer,” said English, who also serves on the board of The New York Mortgage Coalition. “In this competitive market, sellers are less likely to allow the use of seller concession for closing cost.”
You might have the money to put in a seriously competitive bid, but that doesn’t necessarily mean you should do it.
“While it’s very tempting to buy based on a monthly payment, home values are based on what similar homes are selling for,” said James McGrath, co-founder of New York City real estate brokerage company Yoreevo.
McGrath said home prices tend to go up when interest rates drop, so increasing your offer on a property simply because of low rates can leave you sitting on a loss if rates increase. This is something your real estate agent should be helping you with, he noted, but as a savvy buyer, you should also be aware of it.
No matter how much you like a property, it’s important to keep certain protections in place throughout the buying process.
“In the past few years, many buyers have waived their mortgage contingency in order to make their offers more attractive to sellers,” said Elias Papadopoulos, a RE/MAX broker/owner based in Brookline, Massachusetts. “This strategy can be dangerous going forward because even if you qualify financially if the bank appraisal does not come into value, you will be denied for the loan and could jeopardize your deposit.”
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“If you are ready to sail into homeownership, the wind is definitely at your back right now,” agreed Ben Creamer, principal and managing broker of Downtown Realty Company in Chicago. “Because buyers can spend more on a house and have lower mortgage payments, we’re seeing more clients who are able to upsize or even buy their dream homes.”
Creamer said another advantage of starting your search now is getting a jump on the spring and summer buyers. He said more people tend to search for homes during these months, making the market more competitive.
“Buying during a less competitive season gives you more leverage with sellers,” Creamer said. It can also make the process less stressful for the buyer because there isn’t quite as much uncertainty and pressure from multiple competing offers.”
If the inventory is high right now in your desired area, Creamer said this is also a great time to find a bargain on a home.
“Unlike typical winter months, there are more homes on the market now, because the pandemic has caused just about everyone to reconsider what they need in a home, and many have decided to move as a result,” Creamer said. “In certain areas where inventory is at historic highs, prices have dropped accordingly.”
However, he warned home prices will rise again as the spring and summer months approach, so he advises not waiting too long to start to make a purchase.
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