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We all know there’s no place like home, but with current circumstances and mandated shelter-in-place orders across the country, it’s never been more apparent. Whether you’re a first-time homebuyer hoping to take advantage of lower interest rates, a family who wants a bigger backyard or a couple looking to move closer to relatives, everyone has unique reasons to move. Now more than ever, health and safety are the primary concerns of those of us who help people buy and sell homes.
The real estate industry is taking note. Companies are innovating to modify the traditional buying experience and help people move as safely as possible. Though some have chosen to pause their home search, others are opting to move forward with the home shopping process. Here are four things to consider if you’re shopping for a home during these uncertain times.
1. Monitor fluctuating mortgage rates.
There are numerous factors that determine current interest rates: economic growth, fed rates, inflation, the state of the housing market and lenders’ evaluations of buyers’ likelihood to pay back loans. And when the economy is struggling, mortgage rates tend to fall. However, during these unprecedented times, rates could decrease today and increase tomorrow.
Keep track of fluctuating rates and have a plan in place, as every percentage point counts — even a .5% difference will make a significant change to your payments. For example, a 3.5% interest rate on a $300,000 mortgage means a monthly payment of $1,347, but a 4% interest payment would mean a monthly payment of $1,432. That $85 difference could cover an additional expense like a gardener or about 25 cups of coffee.
As the economy recovers, I predict that mortgage rates will stay on the lower side. And with fewer homes on the market, it’s imperative to jump on an opportunity while the rates are low if you do find your dream home.
2. Preserve your reserves.
When interest rates are low, homebuyers are able to pay off homes faster with shorter mortgages. However, it’s wise to consider a longer-term option to preserve funds and ensure more stability, which is why I recommend a fixed-rate mortgage. Depending on your financial situation, you can take out a loan for 15, 20 or 30 years.
An interest rate on a 15-year mortgage is significantly lower than that on a 30-year mortgage, allowing buyers to save more money over the long term. On the other hand, a 30-year mortgage keeps monthly mortgage payments lower, which increases your savings each month for the short term.
The size of your down payment is another important factor. Contrary to popular belief, it’s not always necessary to put 20% down. Offering a smaller down payment will leave more money in the bank and can be especially beneficial if you have a roommate or tenant contributing to higher monthly mortgage payments. Talk with your lender to understand the best option for you.
3. Ask for additional visuals and a virtual tour.
Across the country, traditional home showings are no longer an option for most. However, practicing social distancing doesn’t have to stop the home search — you can tap into technology to evaluate a home. In lieu of open houses, here are three ideas to help with your home search:
• Request additional photos: Most home listings have photos, but I recommend requesting more visuals, including images from different angles and of areas that aren’t typically shown, like the inside of a garage.
• Examine floor plans: The overall layout of the home plus each room’s specific measurements are important factors to help you imagine how to use each space and what furniture will fit where.
• Take a virtual tour: Many listings offer 3D tours, which present a digitized walkthrough of the home. It’s also helpful to video chat or conduct a virtual tour with an agent; use the time to ask questions and see close-ups. A virtual walkthrough of the house allows remote buyers to feel like they are there. The agent giving the tour can communicate if there are high ceilings, which the direction windows face or any features that are hard to see in still photos.
4. Build flexibility into your current timeline.
In normal circumstances, it typically takes about 30 days from offer acceptance to close on a home with a mortgage. In competitive markets, buyers can propose shorter closing times to appeal to the seller and stand out over other offers.
Of course, working on a faster timeline may not be possible in an unpredictable climate. Mortgage lenders are busier than usual since many homeowners want to refinance during this time, so it is smart to begin working with your lender as early as possible to avoid any delays in closing. Come readily prepared with copies of bank statements, pay stubs and investments, such as your 401(k) and tax returns. The faster you can gather these documents and send them to your lender, the faster the lender can work on securing your loan.
Consumers should also check on the ability to e-file deeds in order to close escrow, since some local government recording offices are closing in accordance with social distancing instructions. Fortunately, many accept electronic recordings or documents sent via mail.
Though we’re in a less than ideal time for homebuyers and sellers, there is light at the end of the tunnel. Early industry analysis predicts the pandemic will initially result in a dramatic drop in transactions, but I expect that that will be temporary. Once markets normalize, homebuyers could benefit from lower prices and competitive interest rates.
Remember that real estate tends to hold its value, especially in hot markets like Raleigh, Dallas and Charlotte. So while the housing market will always have its ups and downs, I’m optimistic — at the end of the day, everyone needs a place to call home.