Purchasing your first home, or any home for that matter, can be a stressful experience. Throw in a global pandemic and economic recession? You may be wanting to just crawl under the first rock you see and call it a day. We are covering five things to make sure you consider if you are thinking about buying a home during the pandemic.
Know why you want to buy
This sounds simple, but I challenge you to ask yourself and write this down. Why do you want to purchase a home? It will most likely be the most expensive purchase you’ve ever made, so it is important to know the answer to this question.
Perhaps it is an investment, you are starting a family, or you just want more space. It could be all of the above. In times like this of heightened uncertainty, knowing your why will help you understand the best choice and be more confident in your decision.
Determine what you can afford
If you take nothing else away, remember this. Know what you can afford, and don’t go beyond that. One of the most common mistakes for first-time home buyers is buying too much house.
There are common home-buying rules to follow when considering a home purchase. One of the more notable ones is the 30/30/3 rule. This rule states the following:
- You should be spending no more than 30% of your monthly gross income on a monthly mortgage payment
- You have at least 30% of the home’s value in cash or liquid assets
- You never purchase a home valued at more than 3x your annual household gross income.
The 28/36 rule is another, but the concept remains the same. There can be dire consequences for not having enough cash saved up before buying a home. Closing costs can be more expensive than expected, unexpected repairs come up, and more generally, life happens. I’ve heard countless stories of friends and colleagues sweating an expensive repair because they weren’t liquid enough.
Think ahead for your employment situation
There is still quite a bit of uncertainty in the world. Entire industries have been turned on their heads and new trends have emerged. Before making a commitment to purchasing a home, think about your employment.
Are you currently remote, or going to the office? Will you have the opportunity to work from a different location? Something else necessary to consider: is there a chance of a layoff, and how would that affect you?
Know what you’re looking for, but don’t rush
That sounds like an oxymoron, but let me explain. When purchasing a home there are often others searching for similar properties, especially if you’re looking in a sought-after area. Some homes will go fast, especially in a hot market.
It’s important to do your research and know what you’re looking for so you are ready when the right home comes along. Getting pre-approved for a mortgage helps here as well. This means that you’ve already secured financing from a lender and can immediately put an offer when you find the one. (It may be a good idea to know your credit score too. Here are a few ways to build your credit.)
That being said, there is no pressure to rush. Yes, interest rates are near zero, but the Fed has communicated that they will be low for at least the next two years. During an uncertain time like a pandemic, it’s crucial for you to make decisions on your own time.
Think you know your market? Check again
It’s essential that you know the market and location you’re buying in. Whether you want to believe it, many say that location and timing accounts for 80% of the price of a home. This means that the neighborhood or area can make a huge difference in the price, and price growth.
Taking the time to know the area you’re considering a purchase in is part of the required legwork. There are many factors to consider, such as school districts, HOA, and other homes in the neighborhood.
Now it’s time for another pandemic twist. COVID-19 has brought changes, and real estate certainly has not been spared. We are already seeing the beginning of what may prove to be a significant trend.
Rents are decreasing drastically in high profile areas such as San Francisco and New York City, yet home prices are still maintaining pre-pandemic levels. This could be due to a relatively low supply maintained, but only time will tell. Suburban areas are booming across the country, and there’s even been an uptick in prices for rural areas.
The fact of the matter is that the world is still trying to understand how long it will take to get back to “normal”, or what the new normal will even be. This makes it crucial to remember your “why” and know what you’re searching for.
The pandemic may have brought changes, but the fundamentals of purchasing a home have remained the same. Understand what you want, set your price, think ahead, and know your why.