A recent survey by Lowes showed that more than half of U.S. renters agree that the real estate market landscape amid the coronavirus pandemic only made them more enticed to purchase a home. Mortgage rates are at historic lows, and many younger buyers with a steady income are already entering the market.
All-Time Low Mortgage Rates
Although there has been a recent increase in the past months, mortgage rates continue to be at their all-time low since the 70s. Currently, the average interest rate for a 30-year loan is only 2.839 percent. For a 20-year and a 15-year fixed-loan, the average rates are only at 2.613 percent and 2.2296 percent, respectively.
While these historic low rates would not last forever, they will likely stay relatively low for the whole duration of 2021 due to the sluggish economy.
Even if the average 30-year mortgage reaches 3 percent this 2021, it is still lower than the previous years. A lot of home buyers would still be interested in buying a house and securing a home loan.
Limited Housing Inventory
While the mortgage rate is at an all-time low, the real estate market faces a crisis in the housing inventory. As of December of last year, housing inventory was only at 1.07 million units for sale – a 23 percent decrease year over year decrease. This only represents a 1.9-month supply, which is well below the threshold for an equal housing market.
Sellers right now have the upper hand because of the limited listing. Buyers are scrambling to get the best deal in the market possible. The average price for an existing home in December 2020 rose to $309,800. It is 12.9 percent higher than the previous year and is said to be the highest median rate for December.
Should You Buy A Home This Year?
Financial experts say there is no straight answer to the question, as you could be purchasing a home for different reasons.
If you plan to buy a home to turn it into an investment property such as rental or house-flipping, it could be worth it. There is a huge demand for economical rental property right now. Also, profits in house-flipping reached a 20-year high, making it an enticing investment opportunity.
However, if you plan on buying a home to live in, you need to consider your financial situation. Houses right now are pricier. You need more than enough cash reserves to pay a higher down payment.
This also means you have to be a bit more flexible of what house you choose, given that there are limited properties up for sale.
Nonetheless, as the year progresses, housing inventory could go up, causing home prices to come down. It is also highly suggested to start shopping for your future home once the vaccines are rolled out. By then, it is possible that in-person open houses would be back again.
Factors to Consider When Planning to Buy a House
Coronavirus pandemic or not, these are the following factors you need to take into consideration when buying a home.
It is extremely critical to be financially secured before purchasing a house. Though you can always snag a mortgage loan, such as conventional loans, jumbo loans, or FHA multifamily loans, creditors would want to know if you have a consistent employment history. This ensures you have enough cash to cover up mortgage costs.
Your debt-to-income (DTI) ratio should also be taken into consideration. This ratio is a gauge of how likely you can afford your monthly mortgage payment, taking into account your current debts and monthly income. Included in your DTI are car loan payments, credit card debts, and student loans.
Though DTI levels vary, most lenders prefer to lend those below or equal to 43 percent.
Apart from the aforementioned, mortgage lenders would check into your bank records. You have upfront costs when purchasing a house. With your savings, you can pay for the down payment and closing costs. Lenders will want to know if you have enough money to cover upfront expenses and emergency ones.
Good Credit Score
Lastly, you need to have a good credit score. Although each lender uses different credit scoring models, a score mid-700s and above are considered good credit right now. Since lenders are more cautious due to the pandemic-ridden economy, having good credit always helps.
There is no magic formula for landing the right home. But if you have those factors lined up plus a favorable housing market, you will eventually find the perfect home for you.