by: Casey Morris
original post: https://themortgagereports.com/73666/is-now-a-good-time-to-buy-a-house-2021
2021 is a great time to buy a house, for some
There’s never been a home buying market like this one.
The ongoing COVID-19 pandemic has made 2021 a singular time to become a homeowner if that’s one of your goals this year.
Mortgage rates are still near record lows, and work-from-home policies mean buyers have more flexibility to choose where they’ll live.
However, high unemployment and an uncertain economy could make it hard for some buyers to get financing.
So, is it a good time for you to buy? Here’s what you should know.
he 2021 housing market: An overview
Interest rates plummeted to historic lows last year, and they’ll likely remain low for the next couple of years.
That’s great news for borrowers — it means lower monthly mortgage payments and bigger home buying budgets.
However, low rates have also generated more bidding wars and driven home prices up. There are fewer homes on the market and house hunting has become more competitive.
You’ll likely have to move fast when you find your dream home.
And you should figure out ahead of time how much over the asking price you’re willing to pay if it comes to that.
Low interest rates can help buyers afford more expensive homes. But they also create more competition in the market.
The massive move to work-from-home may also have you thinking about a place with enough space to accommodate a home office, or simply spread out a little now that everyone works, studies, and socializes from their living rooms.
Work-from-home policies have given many people the freedom to reconsider where they live, allowing them to relocate to less expensive or otherwise more desirable areas without sacrificing their jobs.
Whatever your reasons for entering the housing market, 2021 could be your year to become a first-time home buyer.
Below, we’ll address some key questions and concerns you may have about buying a house during the pandemic.
Is buying a house during COVID a good idea?
The decision to buy a house has less to do with the broader economy and more to do with your financial situation.
Buying a house during COVID might be a good idea if you:
- Earn a steady income
- Have dependable employment
- Have a credit score in the 580-620 range or higher
- Have money saved up for a down payment and closing costs
- Have a low to moderate debt-to-income ratio (DTI)
In the current economy, employment and income stability are key.
Mortgage lenders want to see that your income will continue at its current level for at least 3 years after closing.
If you were recently laid off then hired back, had hours cut, or work in an industry heavily impacted by COVID, you’ll likley have a harder time getting a mortgage right now.
But there’s an upside to buying a house during COVID.
Assuming you have good credit, you may be able to secure an ultra-low mortgage rate this year. This could lower your monthly payments and save you thousands of dollars over the life of the loan.
But you don’t want to rush into a purchase based on interest rates alone.
A mortgage is a long-term commitment, so make sure you’re financially ready, regardless of what’s happening in the real estate market.
What’s different about buying a house during coronavirus?
As sellers, real estate agents, and lenders comply with social distancing mandates and work to keep themselves and their teams safe, you may find that some aspects of the home buying process have gone online.
For instance, some sellers or agents may offer virtual tours rather than in-person showings, and you may opt for an online mortgage application rather than applying at a brick-and-mortar bank or lender.
Depending on who you work with and where you live, the home inspection and closing process may happen virtually as well.
Your home buying prospects could also depend on your profession in 2021.
If you work for yourself or have non-traditional income (such as being a gig worker or seasonal worker), some lenders may be reluctant to work with you right now because they’re more risk-averse due to COVID.
However, you can ask lenders about your situation before submitting an application, and they can advise you on exactly what documents and income proof you’ll need to qualify.
If you have a steady, reliable income and your business is not at risk during COVID, you should still be able to get a loan. If one lender denies you simply because you’re self-employed, try again with a few others that will look more holistically at your application.
Are you eligible to buy a house this year?
If you’re wondering whether you should buy a house this year, the first place to look is your personal finances.
Factors like your credit score, savings, income, and debts will determine whether you qualify for a mortgage, and how much house you can afford.
How much down payment do I need?
Expect to put down at least 3% to 3.5% on your new home.
If you’re buying a home worth $300,000, that means you’ll need at least $9,000 to $10,500 saved for a down payment.
You need to budget for closing costs, too. These typically add 2% to 5% of the purchase price to your upfront fees. That’s another $6,000 or more on a $300,000 home loan.
Keep in mind, mortgage loans with less than 20% down charge private mortgage insurance (PMI). This adds to your monthly bill, but can help you buy a home much sooner.
Can I buy a house without a down payment?
If you’re a veteran, or if you are buying in a rural area and meet certain income limits, you may be able to qualify for a 0% down payment VA loan or USDA loan.
VA loans are typically reserved for veterans, service members, and their families. USDA loans are available in designated rural areas and were designed for low- to moderate-income buyers
If you’re not eligible for a VA or USDA mortgage, a down payment assistance program can help you close the gap and qualify for a mortgage.
Down payment assistance programs vary by state and county, but they often provide help in the form of grants or forgivable loans that may be used toward buying a home.
In some cases, the programs include cash or a loan toward a down payment, as well as help with closing costs.
What credit score do I need to buy a house?
The minimum credit score to qualify for an FHA loan is 580. You’ll typically need a 620 FICO score to be considered for a conventional or VA mortgage. And USDA applicants must have a score of at least 640.
Keep in mind, the higher you can get your credit score before applying for a mortgage, the better the interest rate you’re likely to get.
A high score indicates good financial habits, and lenders factor it into their lending decisions and the rates they offer.
Can I buy a house on unemployment?
Generally speaking, you will not be able to buy a home on unemployment income.
Lenders need to verify your income when you apply for a mortgage. They want to know it will remain steady once they’ve made the loan. Since unemployment is a temporary benefit, lenders can’t use it to qualify you.
However, you may be able to get a mortgage if you’re unemployed but you have a documented offer of employment that indicates how much you’ll be earning once you start the job.
Mortgage lenders will also look at your credit score and your payment history while you were unemployed, as well as your down payment amount.
Can I buy a house with student loans?
Yes, you can buy a house with student loans. However, those loans factor into your debt-to-income ratio, which is a key metric lenders use in approval decisions.
If your student loan payments take up a significant amount of your monthly income, you may have a more difficult time getting approved for a home loan.
There are ways to improve your chances, though.
Consider loan consolidation or applying for a graduated repayment plan. Either of those options may reduce your monthly obligations, at least for a time, and that can get you to a more favorable DTI. However, ask the lender how they view modified student loan payments. Some lenders may count the full payment against you if you are on an adjusted payment plan.
If you can save more than 3% for a down payment, that may help as well, since a smaller loan means less risk for borrowers.
As a first-time home buyer, you may also want to look at small homes with lower price points. That may help you secure a loan, and it can also keep your mortgage payments manageable while you continue paying down your student debt.
Do you have to be married to buy a house?
No, you do not have to be married to buy a house. You can qualify for a mortgage as an individual borrower, or you can buy a home with a partner to whom you are not married.
Buying a home as a single borrower simply means you need to qualify for the loan on your own merits. You will not have a partner’s income to supplement your budget.
If you’re unmarried but want to buy a home with a partner or roommate, you can apply for the loan as co-borrowers and count both your incomes toward the mortgage.
As long as you qualify for the mortgage, it’s no harder to buy a home when you’re single than when you’re married.
The home buying process in 2021
What’s the first step when buying a house?
The first step toward buying a house has not changed during the COVID pandemic. Potential home buyers should start by getting pre-approved for a mortgage.
A preapproval letter does not guarantee that a lender will work with you, as they will vet your finances more closely during the formal application process.
But it does give you a sense of whether you’ll qualify for financing, as well as how much you might be able to borrow.
Not only does this help you focus your home search on properties you can afford, it tells real estate agents and sellers that you’ll likely be able to go through with a purchase once you’ve made an offer.
Do I need a real estate agent to buy a house?
You don’t need a real estate agent to buy a house, but they can be quite helpful. A real estate agent generally has deep knowledge of the local market, and they do a lot of the legwork for you.
Once you’ve told them your price range and the type of property you want to buy, they can scour listings for suitable homes and arrange showings for you.
A real estate agent or Realtor can also negotiate on price and help you hone your offer, not to mention manage a lot of paperwork and logistics on your behalf.
The exception to the real estate agent requirement is if you buy an FHA foreclosure property. In that case, you must be represented by a real estate agent.
Can I make an offer on a house without seeing it in person?
Yes, you can make an offer sight-unseen, meaning without seeing the home in person. In fact, this is pretty common.
Buying a house sight-unseen has become particularly common in cities such as Los Angeles and Denver, where desirable homes get sold very quickly. In competitive markets, a sight-unseen offer may be your only chance at nabbing a property that has caught your eye.
But there are risks to doing this. Visiting a house in-person gives you a close look at the features and flaws of the home, and it allows you to get a sense of the neighborhood and what the property looks like when it’s not being professionally staged.
Making an offer before you’ve been to the home means you could be on the hook for a home you don’t like or that needs more work than you expected.
Can I buy a house remotely?
You may be able to buy a house remotely, depending on the seller, agent, and lender’s policies.
Some listings may include a virtual tour option, and with so many lenders offering online applications, keeping your distance has never been easier. Some appraisers and inspectors will do curbside or virtual appointments rather than going inside properties.
If your lender offers virtual closings, you can finalize your loan and take possession without needing in-person meetings.
But there are downsides to a remote purchase as well.
If neither you nor your home inspector or appraiser has taken a good look at the property, you could miss red flags that would have made you reconsider the home or at least negotiate the price.
Common financial questions for first-time buyers
Many first-time home buyers focus on their down payment. But there are all sorts of other fees associated with buying a home — some optional and some not.
What are the fees associated with buying a home?
When you buy a home, you’ll pay closing costs of roughly 2-5% of your mortgage loan. These can include:
- Lender origination fee
- Mortgage points (optional)
- Prepaid property taxes and homeowners insurance
- Inspection fees
- Appraisal fees
- Title fees
- Homeowners Association (HOA) fees
You may be able to negotiate some of these fees with your lender.
In some instances, your seller may be willing to pay your closing costs in exchange for your willingness to pay full price or more than their asking price.
Or, you can ask your lender to cover part of your closing costs and pay a slightly higher interest rate in exchange. This is known as a “lender credit.”
Before choosing a loan, get quotes from several lenders and compare the loan estimates they provide you.
A Loan Estimate will break down all of the costs and fees associated with the loan, so you can do a side-by-side comparison to see where you’re getting the best deal.
What are points when buying a house?
Discount points are a fee you can pay upfront to lower your mortgage interest rate.
One point typically costs 1% of the loan amount and lowers your rate by about 0.25%.
Paying points is optional, so if you don’t have extra cash to put down when you take out your mortgage, you can still go ahead with the loan.
If you’re worried about interest costs but don’t want to pay for mortgage points, you can consider refinancing once you’ve built up equity in the house.
What is earnest money?
Earnest money is essentially a deposit you put down to show you’re serious about buying a house. It’s typically paid when the seller accepts your offer.
This money is not pocketed by the seller. If you move forward with the home purchase, the earnest money goes toward your down payment.
In a competitive market where homes go quickly, offering earnest money can help distinguish your offer from those of other buyers.
If you’re buying in a rural area or a slow market, your offer may be accepted with an earnest money commitment of $1,000 or less. But if you plan to purchase in an in-demand area, be prepared to offer much more than that.
Do you get a tax break for buying a home?
The Biden Administration has proposed a $15,000 tax break for first time home buyers. But as of this writing, the measure has not yet been passed.
You may be able to deduct the interest you pay on your mortgage on your annual tax return. This benefit only applies if you do not choose the standard deduction and you instead itemize your deductions.
Taxpayers who itemize their deductions and are single or married and filing jointly can deduct interest paid on up to $750,000. Those who are married and filing separately may deduct interest paid on up to $375,000.
Do I qualify to buy a house now?
The best way to find out whether you qualify to buy a house is to assess your credit score and your current debts. If your score is 580 or above and your debts are relatively low, it might be a good time to buy a home.
To learn more about your options, apply for a pre-approval to find out how much a lender may let you borrow.
Be sure to request quotes from several mortgage companies and compare rates and offers before you buy.