The global pandemic has us all spending a bit more time at home. Many people have spent their extra time completing home improvement projects, cleaning up, or simply getting more acquainted with their property.
Although you might be ready to get out of your home and explore again, you might also be curious about buying a home during a market downturn. If you’re interested in exploring the possibility of buying a home during a financial crisis, then here’s what you need to know.
Factors to help you decide if you’re ready to buy
Before you look at other economic factors that may impact the housing market, it’s important to review your unique situation. Here are some factors you should take a close, hard look at before deciding to purchase a new home.
Evaluate your financial health
As you may already know, purchasing a home isn’t cheap. You’re typically required to make a down payment upfront, as well as prove your financial standing. When you apply for a mortgage, factors such as your credit score, income, debts, and more will be taken into consideration.
As you build up your savings and do your best to boost your credit score, you should also take your job security into account. The job market is volatile right now, so be sure you’re confident that you’ll remain employed and be able to afford the payments on your new home if you decide to purchase.
Take a close look at your lifestyle choices
You should also consider your lifestyle before purchasing a home.
For example, if you work long hours and have a commute, you might not want to purchase a house with a big yard that requires lots of maintenance. If you find a small home that you love but want a family soon, then it might not be the best move for you in the long run.
Estimate the cost of buying vs. selling
There are costs involved in both buying and selling a home. When you sell a home, you may have to pay taxes on the capital gains from your property. Additionally, you’ll likely have to pay 5% to 6% of the home’s selling price to your realtor.
When you move, you’ll take on the costs of moving. Not only will you have to pay movers or rent moving equipment, but you may also end up owning two homes while you sell your current home. You may have to close out accounts with your utility providers and purchase equipment for your new home.
Finally, you’ll have to pay closing costs on your new home. There may be legal fees, appraisal fees, and more involved in the process. With this in mind, you should take the time to estimate each of these costs to help you determine if you can afford to buy a new home. Sometimes, it might be a better option to continue renting until you get your finances in order.
Other factors to consider
Outside of your readiness to buy, other factors may contribute to you purchasing a new home during a recession.
Interest rates have been slashed to help stimulate the economy. However, even though interest rates might be at an all-time low, the interest rate you’ll receive will be contingent upon your credit score, debt-to-income ratio, credit history, mortgage term, and more. The better your financial standing, the more favorable rate you’ll receive.
Each bank or lending institution will evaluate these factors before offering you a mortgage and setting your interest rate, so be sure to shop around. For example, let’s say you qualified for a 2.75% interest rate for a 20-year, $200,000 mortgage. You’ll end up paying $60,239.83 in interest over the term of the loan. If you had a 3.75% interest rate on the same mortgage, you’d pay $79,939.68 in total interest.
With this in mind, you can see how even the slightest difference can have a significant impact on the interest you’ll pay on your loan. Therefore, shopping around for the best interest rates can save you a lot of money in the long run, and even decrease your monthly payments by hundreds of dollars.
The heartbeat of the local market
Each industry has been impacted differently by the global pandemic. The same goes for cities and even neighborhoods. Therefore, you must have a good pulse on the housing market in your desired area.
If you live in an area that hasn’t been significantly impacted by the pandemic, and people aren’t selling their homes, then it might be a seller’s market. If you’re shopping in an area in which more people are struggling and are selling their homes as a result, then it might be a buyer’s market. Regardless, it helps to know the status of the local housing market so you can maintain some power in the negotiation process.
The bottom line
Everyone has been impacted by the pandemic, and some in different ways than others. If the pandemic has you feeling sick of your home and ready to buy a new one, then be sure to evaluate your current and future readiness to buy a property. Doing a bit of homework can save you a lot of money in the long run.