Purchasing a Home During the Pandemic
The process of purchasing a home has changed dramatically since the rise of COVID-19, with more of the work being done virtually. COVID-19’s impact on the economy might have changed your financial situation, too, such as a layoff or reduced hours/income. If you have been thinking of purchasing a home during the pandemic, you might need to develop a Plan B.
Questions for Potential Homebuyers
Before continuing with your home purchase plans, ask yourself the following three questions:
How stable is my job?
You might be considered an “essential worker,” or your position might allow you to work from home. Even so, COVID-19 has rocked the stability of many organizations. If you foresee layoffs/furloughs on the horizon, you should consider delaying your home purchase.
How much of a down payment can I afford?
There are many down payment assistance programs out there. However, these programs may still require you to contribute some money towards a down payment and/or closing costs. Determine if you have enough in reserves to cover these costs; if not, it may not be the best time for you to buy a home. One of the main principles of personal financial management is making sure you have three to six months’ worth of savings in case of job loss/income reduction. If that’s not feasible, a good savings goal is at least $1,000 in case of emergency.
Do I have to buy now, or should I wait?
You might want to buy a home because your rent is increasing. Maybe you’re concerned you’ll be locked into a lease that would be costly to break if you wanted to move out early. Or maybe you’re tempted to lock in mortgage interest rates while they are low.
While these are the potential benefits of buying a house, look at your current financial situation, and determine if there are more pros or cons to buying right now. For instance, is your income stable, and will you be able to afford the mortgage payment after the purchase? Do you need to buy a lot of furniture? If so, do you have money saved up for it, or will you need to charge it? It’s important to plan out all potential costs so you know if the home purchase will be affordable in the long run. Avoid relying on credit for any part of the home purchase, unless you have the cash to pay off the card right away.
Changes to the Homebuying Process During the Pandemic
In addition to answering the questions above, keep in mind recent changes in the homebuying process and landscape. A NerdWallet article outlines some of the biggest changes this year:
- Credit score requirements are rising among some lenders. As more people struggle to pay their debts during the pandemic and their risk of defaulting on a home loan increases, some lenders are requiring higher credit scores from potential borrowers. Usually, a score of 700 or better would help you qualify for a mortgage. However, if you are able to achieve a score of 740+, that’s even better.
- Minimum down payments are also increasing. While you may feel financially secure in your current job, what if COVID-19 results in a pay cut or temporary furlough? You would have to rely on your savings to survive, making it difficult to afford any down payment, let alone a higher-than-normal down payment.
- Some lenders are slowing or pausing their issuance of home loans during this uncertain economy. Be sure to shop around with multiple lenders if you do decide to purchase a new home.
- Some sellers are taking their homes off the market. This means fewer houses to choose from in an already tight inventory and possibly more bidding wars over the houses that are available.
In addition to the above changes, expect the basic home purchase processes to take longer to complete (i.e. home inspections, appraisals, closings, and legal and mortgage loan processing) because of staffing shortages and the need for proper safety precautions.
Take These Steps Before You Start House Shopping
Prior to house shopping, you should create a realistic budget, including your ongoing and potential new expenses that come with a home purchase, such as association fees, home maintenance, utilities, property taxes, etc. That will help you determine the monthly mortgage payment you can afford. Once you do that, you will want to get pre-approved for a loan; doing so shows sellers and lenders that you are serious. Just be sure to stick to your limit for the mortgage/monthly payment.
It’s crucial that you are in a stable financial situation when you commit to purchasing a home. If there are signs of even small cracks in your financial foundation, it is best to hold off until you are financially ready.
LSS Financial Counseling has experienced counselors who can provide support during your homebuying journey. We provide free, confidential help whether you’re working to get your finances back in order or looking for resources to help you purchase a home. Call us at 888.577.2227 for your free session.
Author Ray McCoy is a Certified Financial Counselor with LSS Financial Counseling.