At the beginning of 2020, no one expected the United States would be in the position it is in today, including me. With social distancing the new normal, many people are still hoping to buy a home; now they’re stuck wondering if they should purchase a home right now or wait out the pandemic.
As with most financial questions, the answer depends on many factors. You have control over some of these things. Other aspects are out of your hands. People that consciously examine their current position and the risks can make a somewhat educated decision.
My wife and I started the process of buying our current home and selling our old home in December 2019 before the pandemic was on anyone’s radar. By the time we ended up closing on both homes at the end of February 2020, COVID-19 had just started spooking the United States markets.
I’ve included our experiences and personal thoughts to help you get a feel for what real buyers and sellers are going through.
What are the pros of buying a home during the pandemic?
- There is lower competition for homes due to fewer people actively shopping and buying homes right now.
- Mortgage interest rates may be near all-time lows resulting in lower monthly mortgage payments.
- You have the potential to get a better deal on a home’s price than a few months ago if a seller needs to sell or wants to put a house behind them.
What are the cons of buying a home during the pandemic?
- You risk contracting COVID-19 every time you leave your current home.
- Housing inventory may be lower as some sellers wait until this passes to list their homes or they don’t want people coming through their house.
- You may not be able to move through the home buying and mortgage process smoothly.
- Housing prices may decrease in the near future.
- Mortgage lenders may have stricter lending guidelines that disqualify you when you may have qualified for a mortgage prior to the pandemic.
- You may have a harder time finding top-notch home inspectors, appraisers, and other professionals during the pandemic.
- Moving may be more difficult as friends and family probably won’t volunteer to help due to social distancing guidelines.
Mortgage lenders to consider if you do decide to buy a home during the COVID-19 pandemic
For well-prepared individuals with a strong financial position, now may be the perfect time to buy the home of your dreams. You’ll have to hope the right home comes on the market and you can get a good deal on it. If everything comes together, it is still possible to buy a home during the pandemic in most cases.
When you’re ready to start mortgage shopping, make sure you check out Credible to help figure out if you’re getting a good deal.
Credible helps you shop multiple mortgage rates at once. It only takes three minutes to enter some basic information and get pre-approved for a loan. You’ll then see personalized rate quotes from a variety of lenders.
Credible doesn’t do a hard pull of your credit score to qualify you. That means you won’t have to worry about your score dropping while you’re preparing to buy a house. Credible also doesn’t provide your information to lenders, so the pre-qualification process is between you and Credible.Credible Operations, Inc. NMLS# 1681276, “Credible.” Not available in all states. www.nmlsconsumeraccess.org.” Credible Credit Disclosure - To check the rates and terms you qualify for, Credible or our partner lender(s) conduct a soft credit pull that will not affect your credit score. However, when you apply for credit, your full credit report from one or more consumer reporting agencies will be requested, which is considered a hard credit pull and will affect your credit.
Why some people are concerned about buying a home during the pandemic
People have good reason to be concerned about buying a home during the COVID-19 pandemic. This disease has drastically changed how the United States works.
The buying process increases the risk of COVID-19 transmission
If you fear for your health, buying a home may not be a good idea right now. The process of buying a home typically involves many in-person interactions.
While you may be able to mitigate some of these interactions with social distancing, being careful, and washing your hands, it may not be enough. The more you leave your home and interact with others, the higher your chance of catching the virus is.
In particular, you usually meet with a real estate agent in person. You tour many homes you’re interested in, most of which have people that live in them.
You may want to attend any home or pest inspections in person to understand exactly what you’re buying and to see any potential problems firsthand. Once everything with the sale is wrapped up and ready to sign, you have to go to a closing and sign paperwork with a closing agent.
There are other steps in between that could also expose you to the virus, but these are the most essential. You could take virtual home tours and some states may allow for virtual closings. Even so, very few people would buy a home without setting foot in it first. I don’t blame them.
The mortgage lending process is facing challenging times
Getting a mortgage is usually a predictable process. You apply for a mortgage and give the lender the requested paperwork. This paperwork helps the lender feel confident you can afford the mortgage. Things aren’t as simple today as they once were, though.
Mortgage rates are all over the place
Lenders tend to offer fairly competitive rates in a stable environment. Some lenders may offer better rates than others, but the difference between lenders is normally relatively small.
Our original mortgage process was straightforward without any problems. After we closed on our home, mortgage rates dropped fast. We decided to refinance our mortgage right after closing on our home.
For the refinance, finding a lender with a great rate was a bit harder than we thought it would be. We had to do a lot of shopping around to find the best rates as some lenders had rates that were much higher than others were offering.
Rate quotes were as much as 2% different between lenders over the course of a couple of weeks. This is insane in a stable mortgage market.
Some mortgage processes have become more strict
Underwriters review the information you’ve submitted to see if you qualify for the loan. They look to see if they need any additional information and eventually approve your loan for closing. Usually, this is straightforward and borrowers know what to expect. Today, requirements may be changing.
Mortgage companies have started altering their requirements to take out a mortgage. Chase stated back in April that buyers of certain home loan programs will have to have a credit score of 700 and a 20% down payment to get certain types of mortgages. And many lenders have followed their lead.
We could tell the process was getting stricter when we refinanced in March, as well. To our surprise, one lender would have required us to sign an affidavit saying we hadn’t lost our jobs and our income situation hadn’t changed at closing.
I didn’t have to sign this paperwork when we originally closed on our purchase loan. Lenders seemed like they were taking a more in-depth look at the mortgages they had in process, and this was in mid-March. As this crisis continues to drag on, lenders may get even more stringent.
Slower processes could challenge your closing timeline
Unfortunately, coronavirus has made the mortgage process more difficult. Due to the virus, interest rates on mortgages have generally dropped. This is great news for your monthly payment, but it also means mortgage lenders are much busier than usual processing refinance requests.
This can slow down the mortgage approval process because lenders don’t necessarily have enough staff to handle the higher refinance demand. To make matters worse, COVID-19 has forced many employees to work from home. At home, the employees may be less efficient and not have the tools they need to complete their jobs as quickly.
The lender usually orders an appraisal to make sure the home isn’t worth less than you’re paying for it, too. This requires an appraiser to visit the home and complete an appraisal report. The virus has posed challenges for these appraisers.
Many home sellers may not want to let a stranger enter their home to assess its value. There is no telling if the appraiser has the virus or not. Even if you can get an appraiser, they may have to take extra precautions which could slow down the process.
If a mortgage lender can’t complete the entire mortgage process in time, it could delay your closing on your home. This could result in penalties or your contract falling through altogether.
So, should you buy a home during the pandemic?
Buying a home during the pandemic could work out in your favor. If you have your finances in great shape, you could take advantage of the down market during these tough times.
Get a good deal on houses that must sell
Some people absolutely must sell their homes right now. They may have already bought another home elsewhere and can’t afford to make two mortgage payments for long. Others may have had to relocate for work and don’t want to wait to see if COVID-19 drags their old house’s value down.
In these cases, you can test the willingness of the sellers to wait out the COVID-19 pandemic. Some sellers may not be willing to budge on price. Other sellers may drastically reduce their selling price to sell and avoid future uncertainty. If you’re not picky about getting a particular house, you could get a great deal.
If our prior house didn’t sell before the pandemic took hold, this very well could have been our family. It could have resulted in us getting a much lower price than we ended up selling our home for, or us holding on to our home for a much longer period to get the price we wanted. Either way, it would have cost us money.
Avoid homes you won’t own for long
Be careful about what type of home you buy during the pandemic. Now is not the time for most people to buy starter homes that they plan to move out of in a few quick years. If housing prices drop, you may be stuck in the home.
Buying long-term or forever homes may work out fine
Buyers purchasing a home they plan to spend a significant amount of time in, such as a decade or more, should hopefully be able to weather any negative short term impacts the housing market faces. Nothing is guaranteed, though.
Why shouldn’t you buy a home during the pandemic?
Buying a home during the pandemic isn’t a good move for everyone. In fact, you may be better off waiting to buy.
Limited housing supply
As a home seller, we’re delighted we sold when we did. If we still had our home on the market after the COVID-19 pandemic took hold and we still lived there, we would not have been comfortable with others coming through our home to view it.
If we hadn’t put our house on the market already, chances are we would have waited until after the pandemic was over to list our home. It would have put our mind at ease that we wouldn’t have to find another place to live while the world is in lockdown should we be lucky enough to sell.
Other potential sellers are facing similar dilemmas. This could result in fewer houses being put on the market, resulting in a tighter home supply during a typically busy spring market.
Housing prices could decline
No one knows how the housing market will end up on the other side of this pandemic. It could result in lower housing prices in the future. This result could be temporary or it could last for years.
Even if you think you’re getting a deal today, prices may decrease even more before the pandemic is over. Without a sizable down payment and equity in your home, you may end up underwater and be unable to sell it or move.
As a home buyer, we’re happy with our purchase. Even so, part of me wonders if we’ve now bought at a peak in prices. We are very aware we might see housing prices decrease in the future.
This doesn’t worry us as much as it may bother others. We plan to live in this house for at least 10 years. It has plenty of space and is in a great neighborhood with good schools. If this was a starter home, we would be very concerned about our ability to resell it for a profit in a few years.
You could lose the income you use to pay your mortgage
Another reason to avoid buying a home right now is uncertainty about your job. Those that need a paycheck every two weeks to make their mortgage payment could end up getting foreclosed on if they get furloughed or laid off.
Unless you have substantial financial reserves that could help make mortgage payments until you find a new job, buying a home right now probably isn’t a good idea. Instead, you may be better off focusing on building reserves.
Buying a home would exhaust your cash reserves
Most people save for years to be able to afford a down payment for a home. When they close on their home, some people use almost all of their available cash to do so. This leaves them with no emergency fund to speak of.
If this is you, don’t buy a home right now. If anything bad happens after you purchase your home, it could put you in financial ruin. Losing a job could result in foreclosure. A large home maintenance item that suddenly needs to be taken care of, such as a damaged sewer line, could put you into debt.
Instead, wait until you have enough money for a down payment while still keeping a cash reserve after you close on your home. Something unexpected always pops up.
When we bought our first home, we quickly found out our air conditioner needed to be replaced. That was an unexpected $3,000 expense on a $79,000 home, but it could have been much more if we needed a new roof.
You may not be able to sell your current home
If you would have to sell your current home to afford your next home, now isn’t a great time to buy. Whether you want to move to a different area or move up to a nicer home, there is no guarantee your current home will sell in time.
If it doesn’t sell and your contract to buy falls apart, you may lose your earnest money and any other fees you paid throughout the process. The other potential issue could be selling your home for much less than you’d otherwise get if you weren’t crunched for time. Either way, you could lose out substantially if things don’t work out as anticipated.
Buying a home could be a good move for you if your finances are in order, you’re buying a home for the long haul and the right house comes along.
However, those with an uncertain future or just enough funds to barely make a down payment on a house would likely be better off waiting until there is more certainty before buying. You may not get as good of a deal, though.
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