If 2020 was going to be the year that you finally achieved your dream of homeownership, you’re probably well aware by now that things are… well, a little different this year.
With a global pandemic in play, practically every industry is preparing for a “new normal” and navigating new guidelines, lifestyles, and consumer priorities.
In this article, we’ll explore how COVID-19 has impacted the 2020 housing market and what you can expect.
Housing & Real Estate Market 2020: What’s Changed?
Let’s talk about the good news first: mortgage rates are at record lows!
But that also means that with more borrowers hoping to take advantage of those attractive rates, they’re also facing some of the toughest loan-approval standards in years. One report from the Mortgage Bankers Association showed that mortgage credit availability has decreased by more than 25% since the U.S. outbreak of the virus.
But why is this? Industry experts say that large lenders are more risk-averse because of the pandemic, as well as the ripple effects of borrowers delaying their monthly payments as allowed. Some lenders are even completely pausing the issuance of loans, which is why it’s more important than ever to go through a reputable mortgage broker so that you can shop more than one lender.
Additionally, there may be fewer homes on the market overall. While most real estate agents have continued to work, according to a recent survey from the National Association of Realtors (NAR), 57% of agents reported their clients delaying their home sale, and 10% reported clients are deciding not to buy or sell indefinitely.
That being said, there are still homes out there on the market, as a quick search on Redfin or other home-listing aggregates will show. One key difference you might come across, though, is the way you tour the home. Many homeowners are reluctant to host open houses right now because of physical distancing guidelines, so you may need to tour it virtually!
You also might experience the process slowing down a bit: home inspections, appraisals, and paperwork in general may take more time because of staffing shortages. And of course, get ready to work with your mortgage lender digitally, as is becoming the norm.
Housing & Real Estate Market 2020: What Hasn’t Changed?
Now we’ll move on to what hasn’t changed when it comes to the housing market this year.
Good Credit is Important
You probably already know the importance of good credit for securing a favorable mortgage rate. But now, these requirements are getting even higher and stricter among some lenders. Make sure to check your score so you know what you’re working with, and hold on any credit card applications or anything that could potentially hurt your score.
NerdWallet lists the ideal minimum credit score as 620, but mentions that anything higher than 740 will increase your chances of getting the lowest rates.
So if your score isn’t that high, are you out of luck? Not necessarily. Working with a mortgage broker with connections to multiple lenders will help, as they can find the best rate for you and your individual situation. It can also be tough to stay educated on ever-changing requirements on your own, which is why working with a professional is key.
You’ll Need a Solid Down Payment
Do you have a solid down payment saved up? Great! But be aware that some lenders are also raising their minimum down payments. 20% is the standard recommendation, but historically that hasn’t been enforced by lenders; in a recent news article, a Chase representative confirmed that they’re now requiring that along with a minimum credit score of 700. Compare that to the average 6%, as reported in a 2018 survey from the NAR—quite a jump.
Homeowners: Is Now the Time to Refinance?
Want a little extra cash left over in your wallet each month? With many people reevaluating your budgets right now, the allure of refinancing is getting stronger for current homeowners. Like we mentioned earlier in this article, mortgage rates are at an all-time low. So as long as your credit rating is still strong, it’s a great time to refinance your mortgage.
Here are four things you’ll want to keep in mind, though:
Commit to Shopping Around
When it comes to refinancing, it certainly pays to do some comparison shopping. With the economy and housing industry in flux, you’ll find that mortgage lenders are all over the map when it comes to their requirements and the rates they’re offering.
Again, this is where working with a mortgage broker will help. A broker will help you widen your network and uncover lenders that you wouldn’t normally find on your own, often with the best rates. A broker will also help you understand your individual situation and needs.
Calculate Your Savings
Before you jump into the refi process, it’s time to whip out your trusty calculator! A refinance can be tempting when rates are low, but you’ll need to think about your unique situation to make sure it makes sense for you. This includes details like how far into your loan you are, your outstanding loan balance, your current interest rate, the new rate, and what you can expect for closing and administrative expenses. In some cases you may need to get another appraisal on your home as well, which can run you about $500.
Determine Your Break-Even Point
Simply put: your break-even point is when you’ve saved enough in interest to justify any closing costs you’ve paid. Average closing costs for a mortgage refinance are around 2 to 5 percent, so find that number first. Then, determine how long you’d need to pay on the new loan to recoup that amount. If the math makes sense, then go for it! If not, then you may want to rethink it.
Compare the Terms
Of course, you’ll also want to consider all the terms of the new loan. For example, you might be offered a shorter or a longer mortgage term, so you’ll want to run the numbers on the different scenarios to see if it makes sense. There are pros and cons, of course—maybe it’s more important to you to have more cash at the end of the month left in your budget, and you don’t mind a long-term hit to your lifetime savings. This all depends on where you’re at in life and within your current loan, so it’s a personal decision.
Shop with Mortgage Goat
With Mortgage Goat, there are now more options than ever when it comes to buying or refinancing a home. At a time when the economy is ever-changing, alternative mortgage lenders are changing the industry and will only continue to do so.
Ready to make some moves? We’re here to help. Connect with our team of experienced mortgage brokers to learn more!