Those who are looking at buying a home need to think about whether or not they are truly ready for this responsibility. When someone takes out a mortgage, this is frequently the largest loan someone will ever apply for in their life. Furthermore, owning a home also means homeowners insurance, real estate taxes, home maintenance, and home repairs.
Summary: With the lowest interest rates ever; hundreds withdrawn from looking for homes due to economic hardship; and virtual technology ramping up for safe and easy home searches, first-time home buyers in Washington are poised for making incredible deals with sellers during the COVID-19 pandemic.
It is no exaggeration to say that COVID-19 has slowed everything, excepting hospitals and supermarkets, to a snail’s pace. Most small businesses are still in limbo while governments think of ways to aid the laid off and terminated. Even as signs of an economic re-awakening multiply, the long-term effects of this coronavirus make an enduring impact. Still, many of the greatest decisions in business history were made in times of adversity. This goes for financial titans, and it goes for first-time home buyers. In fact, COVID-19 and its aftermath may provide new purchasers with optimal conditions for acting now.
More Shoppers, Fewer Homes, More Opportunity
This pandemic has led many sellers to postpone listing their home for sale. At the same time, COVID-19 has seemingly little effect on those in the market for a house. On the face of it, a contraction in the number of home listings would spell bad news for anyone looking to buy. After all, it just makes the local real estate market that much more competitive. So, first-time buyers really need to up their game to have a chance at a successful bid. Here is their advantage: unlike many veterans, they have no property to unload in order to make the new deal work.
When a purchase transaction is contingent on a simultaneous sale to make the financing work, synchronizing the two can get very complicated. They must negotiate with those buying their own home and with the seller of the new home. On the other hand, buyers of first homes have no such distraction, and can focus solely on their bid and the new purchase itself. As long as they come with earnest money and sufficient equity, and approved financing, they can avoid those problems that can hamstring an otherwise competitive offer.
Lower Interest Rates
Since the Federal Reserve brought the benchmark rate to near-zero, mortgage interest rates have likewise fallen to uncommonly low depths, which is bad news for savers but good news to first-time homebuyers, most of whom have yet to establish significant savings. Modest rates mean that monthly payments are relatively smaller. If the loan amount is high, the savings can be quite meaningful. A $400,000, 30-year fixed purchase loan in which the rate falls by three-quarters of a point can save borrowers $150 per month: that’s a week of groceries or a teeth cleaning or a desktop webcam.
Market analysts at Fannie Mae, one of a few government-chartered mortgage investment corporations predict that rates will sink to unprecedented bottoms this year. These are not your parents’, and definitely not your grandparents’, interest rates. The effects on spendable and saveable household income can be profound. Forecasts, of course, are subject to change. Present rates are already quite low due to the pandemic. New buyers do well to consider acting now if they are in a position to do so. A vigorous and robust economic recovery could render such predictions null and void.
More Convenience when Looking in WA
For the last 20 years, realtors have invested significant time and money into making their listings available online. This movement has evolved from a few photos posted on a website to very detailed webcam videos of each house. While this phenomenon has been around for some time, it has hit a peak because of COVID-19. Now, a Tacoma-based couple can review a multitude of houses in Yakima without multiple two and a half-hour journeys to and from. Because of coronavirus, agents are stepping up their game in terms of updating their virtual tours and many are now in 3-D, and agents often answer questions remotely.
Of course, any prospective home buyer wants to see a property in person before putting down earnest money. Yet technology allows shoppers to narrow down their options considerably. This streamlines the whole process, which once ate up many weekends with exhausting house-to-house walkthroughs. It also cuts down on real estate agents’ overhead, which can work to the advantage of savvy buyers who don’t mind negotiating agent fees. All in all, the speed, availability, and detail with which listings appear during this pandemic work together to the advantage of first-time home buyers in Washington.
Epidemiology and the Real Estate Market
The Seattle region was one of the original epicenters of COVID-19 in the United States. This may be a dubious distinction, but the fact remains that the same metro area was the first to flatten the curve, i.e. to lower incidences to the point where the health care infrastructure could comfortably treat them. This can have a positive effect on the pace of reopening and overall economic recovery in Washington. Hope springs eternal, yes, but there is evidence to bolster hope.
What does this mean for the first-time home buyer? It could mean that time is of the essence. As noted above, real estate markets in this part of the country are vigorous even when times are tough. As lockdowns are loosened, more competitive conditions might erupt quickly. Those new to home buying will suddenly face many more rivals and a shrinking number of listings. If there is any takeaway from an improved public health outlook, it is a warning to avoid procrastination. A wide open field between you and your dream house can get crowded very quickly.
Right Place at the Right Time
One drawback is that, when that special property is discovered, physical open houses are forbidden in the Evergreen State under the Stay Home, Stay Healthy policy. However, phase 2 of that policy is now in effect in 10 counties and allows for some real estate viewing activity with limited numbers of people. As things begin to open up, first-time buyers can position themselves to capture their ideal home selection if they are prepared to do so. Preparation is the operative word.
Mortgage financing pre-approval is one way newbie buyers can get ready to pounce. This is a preliminary evaluation of credit, debt, revenue, and assets based on information from the loan application. It lets the borrower, and any other interested party, know how much money the lender would be willing to advance should the loan be approved. For one thing, it re-directs borrowers to bid on only those houses they can afford. Secondly, it conveys to sellers that prospective buyers are in good financial shape to make an offer. In addition, a pre-approval affords the realtor confidence that he or she is not wasting time.
Another tool in preparing for a bid is to clarify your own goals and plans relative to a home purchase. Is this a “starter” house until more children arrive? How long do you plan to stay — i.e. is there a job involved that requires frequent relocation? Will you settle for a less than an ideal house because the rates are so low and you hate to miss an opportunity? In a way, this sort of self-assessment is as important as any other pre-offer consideration. Some people are not ready to purchase, COVID or no COVID.
Talk to a Mortgage Pro
A conversation with a loan officer is the best first step to getting the proverbial ducks in a row. It demands no commitment and can help first timers figure out the best strategy for proceeding. It can also lead to a pre-approval. Before advancing in the direction of a sales contract, smart buyers need to know just how mortgage financing works.
Since 1992, Sammamish Mortgage has been helping people get mortgages. Sammamish is based in the Pacific Northwest and works with clients in Colorado, Idaho, Oregon, and Washington.
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