The economic downturn affects both home buyers and sellers. Find out how to make wise real estate decisions and stay safe during the pandemic.
The economic downturn—due to coronavirus stay-at-home mandates and social distancing—has resulted in pros and cons for both home buyers and sellers. I’ll cover advice to help both parties make wise real estate decisions during this uncertain time.
4 tips for home buyers during the coronavirus crisis
Since the coronavirus crisis began, more than 26 million Americans have filed for federal and state unemployment benefits. If you’ve lost part or all of your job or business income, and you’re unsure when your finances will return to normal, buying a home may not be the best idea.
But if your income is stable, you have cash in the bank, and you’re confident that you can stay in a home for at least five years, buying a home now might be a smart move. Here are four tips if you’re in the market to upsize, downsize, or become a first-time homeowner.
1. Evaluate your current and future budget
Buying a home is a significant financial commitment, so understanding how much you can afford is essential. If you’re at all worried about getting laid off or the future of your business, buying a home that’s under your budget is wise.
In addition to your mortgage payment, homeowners must cover many other expenses, including property taxes, home insurance, applicable association fees, and ongoing maintenance. Take a hard look at your income, expenses, and savings to make sure you have enough cash for closing and to keep a healthy emergency fund.
Take a hard look at your income, expenses, and savings to make sure you have enough cash for closing and to keep a healthy emergency fund.
Here are some ways to crunch your budget numbers:
- Down payment: Depending on a home’s purchase price, your credit, and your lender, the required mortgage down payment could range from 3% to 10% of the purchase price.
- Closing cash: At the closing table, you’ll need to pay the down payment plus additional expenses, which vary depending on location. They typically include fees for a home inspector, surveyor, property appraiser, credit check, loan underwriting, and homeowners insurance. The total could add up to around 2% to 5% of a home’s purchase price.
- Monthly housing payment: Unless you have a high amount of debt, consider spending a maximum of 20% to 25% of your after-tax income for a home. It includes the mortgage principal, interest, taxes, and insurance—known as PITI.
- Emergency savings: Keep a minimum of six months’ worth of living expenses on hand. This safety net will keep you safe from unexpected expenses or the loss of job or business income.
- Maintenance reserve: Have cash ready for ongoing repairs, such as fixing a roof leak, replacing a heating or cooling system, or needing a new refrigerator. A good rule of thumb is to save 1% to 3% of your home’s value for annual maintenance.
2. Get preapproved for a mortgage
Before spending too much time or mental energy searching for a home, make sure you qualify for a desirable mortgage. The amount you can borrow, the interest rate, and your downpayment depend on a variety of factors, including your credit and income stability.
Due to the economic crisis, lenders are expecting delinquencies from existing customers who are facing hardships. To offset those risks, they’re tightening lending standards for new borrowers making it more challenging to qualify. You may need better credit and more down payment money than was typical before the pandemic.
Due to the economic crisis, lenders are tightening lending standards for new borrowers making it more challenging to qualify.
A mortgage preapproval is a document that outlines how much a lender will allow you to borrow, at what rate, and for how long. It’s a critical tool to know the price range of homes you should be shopping for. Additionally, a preapproval can carry a lot of weight with a potential seller who may be evaluating multiple offers and needs to close quickly.
Remember that you still need emergency money in the bank after buying a home. The fact is, you need even higher amounts of cash on hand for a maintenance reserve. Also, consider other expenses such as moving and furnishing a new place, which can really add up.
3. Use technology to research and tour homes virtually
Many digital tools allow you to research potential homes and stay safe. Here are some ways you can find a new home from the safety and comfort of your existing one:
- Video calls: Have a Zoom or Facetime call with potential real estate professionals or sellers. They can give you a virtual tour of the home and neighborhood and chat about other points of interest like schools, shopping, and public transportation.
- Google Maps: Google’s street view allows you to see the features of a neighborhood and even walk it virtually. You can time your commute to work based on the time of day.
- Neighborhood review sites: Check out the walkability, crime statistics, and school rankings using sites such as Walk Score, SpotCrime, Family Watchdog, AreaVibes, and GreatSchools.org.
Using a variety of resources, you should be able to narrow down your potential home choices significantly. If you can drive by properties, that will also help you know which ones you want to tour.
Once you have a mortgage preapproval and feel sure that you’re interested in buying a specific home or homes, inquire about getting physical access. If it’s vacant, an owner or real estate agent may be able to open it up and let you roam around with plenty of social distancing.
Home tour safety guidelines during social distancing may vary from state to state. Check with your real estate agent to get a better understanding of any requirements or limitations.
However, if the seller still lives in the property, they’ll likely want to make arrangements to be away or to stay outside while buyers tour their home. Be respectful of everyone’s desire to avoid the coronavirus by wearing masks, gloves, shoe coverings, and using hand sanitizer before going into a listing. Find out if anyone in the home has been sick or spent time with someone diagnosed with COVID-19. Likewise, disclose if you’ve been ill or exposed to the coronavirus.
4. Save money with a historically low mortgage rate
The rate for a 30-year fixed-rate mortgage is at a historic low and keeps going lower. According to mortgage rates on Bankrate.com, they fell to 3.55% from last week’s rate of 3.58%. If you want a 15-year fixed-rate loan, it could be as low as 3%. In many parts of the country, owning a home costs less per month than renting a similar property.
However, don’t wait too long to get a mortgage commitment if you’re a serious home buyer. Lenders are under enormous pressure due to a wave of potential defaults, forbearance requests, refinancing applications, and federal stimulus programs they may be processing and funding. As I mentioned, it’s only going to get more challenging to get a mortgage application through underwriting and approved.
Lower rates and monthly mortgage payments may allow you to afford a higher-priced home if your finances are in good shape.
But if you can lock in a low mortgage rate and get a property under contract, it can undoubtedly allow you to save money over the long run. Lower rates and monthly mortgage payments may allow you to afford a higher-priced home if your finances are in good shape.
In addition to low-rate mortgages, there may be bargains on the market, depending on where you want to live. If a seller is uncertain about their financial future, they may be willing to unload their property for a low price. Although many banks are offering forbearance programs, some homeowners may be feeling pressure to sell, giving buyers an advantage right now.
4 tips for home sellers during the coronavirus crisis
Selling a home anytime can be a hassle. But selling a property during a pandemic is probably something you’ve never thought about.
However, real estate closings are happening, so don’t think you can’t find a qualified buyer. Getting a deal may depend on creative marketing and finding a real estate agent who can help you find solutions to new challenges. Here are four tips to make your home attractive and safe for potential buyers.
1. Use technology to market your home
Creating virtual tours is critical to pique a buyer’s interest and reduce the number of strangers in your home. It’s never been easier to use a camera or smartphone to create videos of your home’s interior, exterior, amenities, and neighborhood. However, make sure the lighting is good and presents your home favorably.
You can upload videos to a variety of sites that buyers can access, such as a YouTube channel, Zillow, or Dropbox. If you have a real estate agent, they can include your video files in the multiple listing service (MLS) database and their company website. They may offer professional photographers and videographers as part of their listing services.
2. Vacate your home if possible
If you can move out of your home while it’s for sale, you may get more interest from buyers. Touring a vacant property may seem less risky to buyers and real estate agents. Plus, you won’t have to worry about people coming into your space that could be carrying the coronavirus.
If your mortgage lender offers forbearance, consider suspending your payments and using the money for a short-term rental.
If your mortgage lender offers forbearance, consider suspending your payments and using the money for a short-term rental. Getting distance between you and home buyers might be critical if you, or someone in your household, are elderly or have health conditions that make you vulnerable to COVID-19.
3. Be clear about how you’ll interact with buyers
If you can’t move out of your home, be clear about how you will protect yourself, agents, and potential buyers who want a tour. As the seller, you dictate the protocol, such as everyone must wear masks and sanitize their hands before entering.
Include information about measures you're willing to take, such as disinfecting high-touch surfaces and leaving doors and cabinets opens, so visitors don't need to touch anything. If you have hand sanitizer or personal protective gear to offer, that's a goodwill gesture that should make everyone feel more at ease.
Once you have a purchase agreement signed, you or your real estate agent will need to coordinate with other professionals, such as inspectors, appraisers, contractors, and surveyors. Depending on the buyer's lender, you should be able to complete a remote closing by mailing the original documents.
4. Be prepared for longer than normal marketing times
Since there are fewer buyers and many overwhelmed lenders, the average marketing time for homes across the country may be longer than usual. Being as creative and flexible as possible will increase the likelihood of signing a deal.
No one is sure what market value is right now, so buyers may be aggressive to find out how low you'll go.
If a buyer throws out a lowball offer, don't let it offend you. Carefully consider what your bottom line is and make an appropriate counteroffer. No one is sure what market value is right now, so buyers may be aggressive to find out how low you'll go.
While the fear of the coronavirus and a looming recession may make it more challenging to sell your home, remember that the lending environment is favorable. For buyers who aren't worried about losing a job or business income, getting a historically low home loan is a huge incentive to invest in a home sooner rather than later.