On the surface, it may seem like paying cash for your new home is the better option. But, with low rate mortgages available and your other financial obligations, is it wise to fork up all your cash.
Summary: COVID-19 has left us with an economy that is only beginning to awaken. Home purchasers can take advantage of the low rates, high competition and an uncertain future. Alternatively, the sellers’ market and employment insecurity can discourage buyers.
Although spikes and resurgences of COVID-19 continue to plague many states, economies nevertheless are slowly getting roused from their enforced slumber. In Washington, Colorado, Idaho and Oregon, businesses are again operating, albeit under highly regulated conditions.
While total commercial normalcy might still be a distant aspiration, signs show progress in that direction. Those who have put off a home purchase since the coronavirus descended upon the world last winter now wonder whether the stars are falling into place to make a buy. In fact, there are good reasons for being proactive. There are equally valid arguments for showing judicious restraint.
Incentives for Buying Now
The King of Reasons: Low Interest Rates
Mortgage interest rates were never lower than they are now. This has major implications for prospective home buyers. According to Freddie Mac, a congressionally-chartered mortgage investment corporation, rates as of mid-August sat at 2.96 percent for a 30-year fixed rate loan and 2.46 percent for a 15-year fixed product.
Compared to this time of year in 2019, 30-year loans were over half a point higher. All things being equal, this could represent $100 per month of savings or more depending on the loan amount. Unless buyers are in a very unique financial position, they should opt for the fixed over the variable rate loans when rates are this low.
One thing is certain, waiting for interest rates to drop further is a fool’s errand. While the occurrence is entirely possible, sacrificing the good for the perfect is unwise, particularly if monthly savings are a priority. If you choose to go ahead with a purchase soon, do yourself a favor and lock in the rate.
Buyers do not just pay for a house; they pay for the money to pay for a house. You owe it to yourself to minimize this expense by securing the lowest rate possible. Bear in mind, though, that rates have a history of rising amid uncertainty. With this pandemic, we are living in uncertain times.
A Pro (and a Con): Home Prices Are High
How can this be a positive? For first-time home buyers, there is little upside in this fact to be sure. Yet for those moving from one house to another, the sellers’ market has rarely been better. How long this will last is the question of the moment.
Many other sellers removed their properties from the market as the pandemic ensued so the ratio of shoppers to inventory is quite high. The rewards for those intrepid sellers whose homes remain are higher prices and faster closings. This tees up a much better scenario for a simultaneous purchase: more money to offer in a tight market.
There are other ways for purchasers to gain when the listings are in a slump. An all-cash offer is probably the best way to rise above the competition. It is also the hardest and least likely. Short of that, early pre-approval by a lender beefs up your reputation with sellers. This means the credit, income and assets are all evaluated and signed off on.
The only issues remaining relate to the property. Another edge is yours when you engage a buyer’s agent to represent you. With experience and knowledge, this professional knows how to push a seller’s buttons, if you will, and can negotiate assertively on your behalf. In short, a sellers’ market can work in the interest of a buyer who maximizes all available opportunities.
For buyers with good credit, adequate assets and steady revenue streams, now might be better than later. The economic start-up proceeds for now on a few assumptions. First, the expectation is for a COVID-19 vaccine by the winter of 2020-2021. Businesses that re-boot now are anticipating they can ride out the late summer and fall before the ravages of the pandemic are arrested by science.
Yet viruses have a funny way of outsmarting even the most talented researchers at times. Accordingly, there may be many more months of masks, distancing and other restrictions before commerce can resume unfettered.
Such future ambiguity can affect companies in their plans to re-hire, businesses in their designs for expansion, and those who depend on interstate commerce when out-of-state quarantines are imposed. This means that investment is curtailed, deliveries are delayed and furloughed workers remain so indefinitely.
Those who are fortunate enough to still have jobs and meet lender guidelines can exploit the widespread uneasiness and make their purchase move sooner rather than later. This does not mean you lack sympathy for the hardships of others. It is more a recognition that the present situation favors action over hesitation.
Reasons for Postponing a Purchase
After so many months of pandemic, we know this: nobody really knows how or when the coronavirus will run its course. Despite improvements in unemployment numbers between May and the present, as the economy slowly accelerates, many industries are still sluggish while millions remain out of work or underemployed. Energy, railroads, airlines, care facilities, public utilities and governments are still struggling to reach a point where significant re-hiring occurs.
In fact, re-closings have recently been imposed on restaurants and hospitality outlets. In Colorado, bars and nightclubs have discontinued in-person service. Ada County in Idaho has done likewise. In Washington, phase four reopening has reverted to phase three, placing more severe restrictions on the number of people who can gather in one place. Meanwhile, Oregon has fewer prohibitions relative to doing business. All the same, the re-imposition of COVID-19 rules will definitely influence those considering buying a home.
A Con (and a Pro): Again, Home Prices Are High
Recognizing the ways in which a sellers’ market can work to the buyer’s benefit does not, at any rate, negate the law of supply and demand. While many prospective buyers have opted to sit out the competition until COVID passes, the market is still weighted heavily with those seeking to purchase. Furthermore, they are doing everything you are doing to gain an edge.
This is not to discourage anyone resolved to buy. Rather, this is the reality you must confront in order to be successful in your quest. On the one hand, sellers must be reasonable because lenders frown on their borrowers paying prices above the appraised value. The flip side is that owners can demand as much as reason will allow.
Your Priorities Are Unclear
Looking at the record-low interest rates is intoxicating to those who qualify for home financing. However, you lack a vision for a house, i.e. an understanding of the home’s relationship to the family. What number of bedrooms/bathrooms is optimal? How much land do you need? Will you add onto the structure later? Are you particular about school districts and neighborhood cohesion?
Without thinking these things through, your search will be random and unproductive. It might not be the right time to buy a home you find appealing. It might later rank among your most regrettable decisions. Take time to examine your needs and wants before investing time looking for something. A dream home, after all, begins with a dream.
Talk to a Mortgage Expert
A professional loan officer knows much about the local economic conditions and how COVID-19 has affected the real estate finance industry. This mortgage representative can also help you understand your own finances relative to a home purchase. A conversation costs nothing and can pay enormous dividends when making this decision.
Sammamish Mortgage has been helping those in the Pacific Northwest fulfill their dreams of owning a home since 1992. Sammamish Mortgage has mortgage programs in Oregon, Idaho, Washington and Colorado. Please Contact us if you have any mortgage-related questions. Or, feel free to View Rates directly on our site or Apply Instantly. You can even simply get a Rate Quote instantly.