5 Tips for Buying a Home in 2021
Navigating the home buying process can be stressful, and in these unprecedented times, it can be downright scary. It’s important to give yourself the best possible tools to succeed in securing your dream home. Here are some simple tips to put yourself ahead of the competition.
- Update Your Money Roadmap.
Understanding how your expenses will change, both in monthly cash flow and in preparing for larger costs should be a top priority. When considering buying a home you need to be ready for the immediate expenses of the home purchase itself, i.e. down payment, closing costs, etc. as well as ongoing items such as furniture, home maintenance, and appliances. Do not fall into the trap of buying a home that you can “grow into.” If you can’t afford it now, don’t assume you can afford it in the future.
- Know Your Credit Score and Get Pre-Approved.
It would be devastating to find your dream home only to discover that your credit isn’t as good as you expected, and you’ll struggle to secure financing. You can get one free credit report per year per agency, find yours here. Typically, you’ll need a credit score of 620 or higher but some government-backed loans may accept a lower score. However, a higher credit score generally leads to securing a better interest rate.
To get pre-approved, be prepared to show income and employment history for the past two years, your most recently filed tax return, and pass a credit check. Pre-Approval will give you a better understanding of the amount of house you can qualify for (not necessarily what you can comfortably afford) and it also shows sellers that you’re a serious buyer who should be able to obtain financing.
- Understand Your Down Payment Requirements.
Lenders require a down payment (the cash you pay upfront) for most mortgages, with the exceptions being VA loans and USDA loans which are backed by the federal government and typically don’t require a down payment.
Ideally, you should be prepared to put down at least 20% of the home purchase price. This will help you qualify for a lower interest rate, will lower your monthly payment, and could give you an edge over other potential buyers.
Federal Housing Administration (FHA) Loans can require as little down as 3.5% if your credit score is 580 or higher. You may be able to put as little as 3% down with some conventional mortgages, like the Fannie Mae HomeReady and Freddie Mac Home Possible mortgages.
- Be Prepared to Walk Away.
It’s a seller’s market and inventory is very low, which means it’s not an ideal time to be a buyer, but not impossible either. You’ll want to avoid getting into a bidding war and potentially strapped to a mortgage you can’t afford. When you find the home you want, that fits in with your Money Roadmap, it may be prudent to make your best offer upfront. That way you know if you get outbid, you offered your best and can walk away. Or better yet, if you do secure the house, you’ll be able to afford it!
- Successfully Navigate this Unique Real Estate Environment.
The COVID-19 Pandemic has brought about several changes in the markets affecting interest rates, home values, and the home buying process.
Interest rates have been creeping up from their lows in 2020, but the Fed expects to keep interest rates relatively low until 2023. The 30-year fixed-rate mortgage for 2021 is projected to average 3.15% – 3.5%, making a home purchase attractive for many buyers. It’s worth mentioning that existing home prices across the country skyrocketed about 10% in 2020. In 2021, the average projected increase is 5.9%, meaning you may still have to make some concessions on the home you’re looking for to stay within budget.
Finally, the home buying process is evolving. Be prepared to tour homes virtually and by appointment only. Sight-unseen sales are happening more frequently when purchasing in another city due to the current competitive market. More lenders are offering remote closings and be prepared to close quickly! Having your offer contingent upon the sale of your own home may result in your offer being rejected.
Even now, you still can buy the home you’ve been searching for. Just go into it with a plan in place to set you up for success. At MainStreet, we love to see you achieve your goals, buying a home being one of the big ones! Contact us if you need a partner to help you navigate making these important decisions.
