Buying a home during the coronavirus crisis could make perfect sense. Mortgage rates are at their lowest for many years. With fewer buyers out there, now could be your chance to become a homeowner. Although buying a home is a commitment, it can be an excellent long-term investment.
What should you know about buying a home during Covid-19? Should you buy now or wait until the coronavirus pandemic is over? How can you find the best mortgage rates in the age of coronavirus?
This article aims to answer your questions about home buying in the coronavirus era.
How Covid-19 Has Impacted the Housing Market
The coronavirus has affected every aspect of the nation’s economy — and the housing market isn’t immune. At the start of the pandemic, fewer home buyers were looking to buy a new home. Also, fewer homes came on to the market as many homeowners delayed listing their houses.
Now, we’re a few months into the pandemic. What’s been the effect on the housing market? Is the Covid-19 crisis really the right time to think about buying a house? Let’s look at how the global health crisis has affected the current housing market.
The housing market is one of the few industries that bounced back quickly. Forbes reported that, before the coronavirus, homeownership was at its highest rate since 2013. Although there was a drop in home sales in March and April, the demand for home buying was up 5% from pre-Covid-19 levels by May.
With demand increasing and mortgages rates at an all-time low, now is an excellent time to consider buying a home. Many realtors predict that house prices will only rise as we gradually come out of the pandemic.
Why More Homes are Selling During Covid-19
Since lockdown restrictions came into force, we’ve all spent more time at home than usual. Our houses became offices, classrooms, cinemas, and a place to stay safe from the coronavirus. Here are a few ways that Covid-19 has affected the housing market:
- Families realize they need more space. And if working from home becomes permanent for some people, then the extra room for a home office will come in handy.
- People want to move out of dense city populations to quieter, less-populated suburbs or smaller towns.
- The trend towards working from home means that workers are no longer restricted to living in a specific location.
- Buying a spacious home on the city outskirts is more affordable than city centers.
- Under Covid-19 stimulus packages, homeowners got a better deal than renters.
Buying a Home During Covid-19: The Mortgage Basics
If you think now is the ideal time to buy a home, what should you do? The first step is to arrange a mortgage. Speaking with a mortgage lender will help you know how much you can afford. If you can afford to buy a house, get a pre-arranged mortgage to make house buying easier.
Here’s a helpful summary of the basics of getting a mortgage.
Types of mortgage
First, it’s vital to know which type of mortgage is best for you. There are two basic types of home financing loans that you can get:
- Adjustable-rate mortgage — With this type of loan, the interest rates can change during the mortgage’s life. Various factors can affect interest rates and they can rise sharply — meaning that monthly payments become more expensive.
- Fixed-rate mortgage — The interest rate that your lender offers you at the start is locked in for the mortgage’s lifetime. This means that your mortgage rate remains stable and the monthly payment is easier to budget.
With interest rates so low during Covid-19, it makes sense to get a fixed-rate mortgage. Most analysts predict that interest rates will rise as the economy recovers.
How to get the cheapest mortgage
It makes sense to shop around to find the cheapest mortgage. However, it’s good to remember that the interest rate is only one factor that affects your mortgage payments. When you speak with a lender, they’ll look at your finances to determine interest rates.
Here are some factors that can affect the cost of your mortgage and its terms:
- Income — Your lender ensures that you earn enough to cover monthly payments. Remember that in many cases, owning a home can be more expensive than renting one.
- Credit score — A crucial factor of your mortgage is your credit rating. This score determines the level of risk you pose to the lender. A higher credit score usually means securing a lower interest rate.
- Debt to income ratio (DTI) — This percentage is your monthly expenses divided by your pre-tax income. Usually, a DTI of 36% is necessary to secure a mortgage at a reasonable rate. However, 28% is a better figure to aim for.
- Down payment — Many lenders require a minimum down payment of 20% on the mortgage value. But it is possible to only need a mortgage down payment of 3.5%.
Other factors affecting your mortgage payments
As a homeowner, it’s good to remember that paying for your home involves more than monthly mortgage payments. You also have the following additional costs to think about:
- Closing costs when you buy your house
- Property taxes
- The costs associated with home maintenance — set aside between 1% and 4% of your home’s value for yearly maintenance.
- Home insurance
What if you’re buying a home during coronavirus and are concerned about future layoffs? The best advice is to buy a home that is well under budget. In times of uncertainty, it’s not the best idea to max out on your mortgage limit. Leave yourself enough cash at the end of the month to put away for a rainy day.
The last thing you want is to end up “house poor.” This means that most of your earnings go on mortgage payments and house maintenance, and you’ve not much cash left over for anything else.
Home Buying During the Age of Coronavirus: A Takeaway
Now could be the best time to consider buying a home, despite the Covid-19 crisis. Mortgage rates are at their lowest for a long time, and house prices look set to rise.