The Sum Up: Home Buying and Selling in the Time of Coronavirus

Have you been planning to sell your home or buy a new house? If so, then you’ve probably been following changes in the housing market due to the COVID-19 pandemic.

There are risks and potential rewards involved with the market, as outlined in a recent Forbes article that dove into the ins and outs of real estate transactions in this time of uncertainty and social distancing. Here’s what you need to know.

What’s Happening in the Mortgage Market?

It’s difficult to give a one-size-fits-all diagnosis of the mortgage market as it currently stands. However, here are a few highlights that we think are important for our members.

1. In general, lenders are showing a preference for traditional mortgages that meet the underwriting standards for Fannie Mae and Freddie Mac. Some of the requirements include a minimum credit score, specified debt-to-income ratio and a minimum down payment of 3% of the home’s purchase price.
2. There’s less tolerance for risk than there was pre-pandemic, and as a result, a less robust market for jumbo loans as lenders work to prevent foreclosures.
3. Likewise, there’s a preference for high down payments (with 20% being ideal) to be approved for a mortgage.

The key takeaway here is that lenders may be tending toward the conservative side, especially where it concerns jumbo loans.

What About Interest Rates?

Interest rates have been in the news lately as the Fed has cut rates in response to the economic downturn. That decision was followed by a slight increase. What does this volatility mean for home buyers and sellers?

The Federal Reserve announced it had reduced its benchmark federal funds rate from a target of 0.00% to 0.25%. That doesn’t mean you can get a 0% mortgage, but rates did recently reach an all-time low.

Since not much changed with the economy since that low, it might be perplexing to some people why the Fed later announced a small increase. The reason? The law of supply and demand. The dramatic decrease in rates led to a record number of home refinancing requests which overwhelmed lenders. The Fed raised the rates to remove some of the pressure from lenders.

Adaptations for Buying and Selling During a Pandemic

One of the things we have found most interesting to watch on behalf of our members is the way that real estate agents, title companies and lenders have adapted their services to reduce the risk to buyers and sellers. For example:

• Real estate agents are offering video walk-throughs of homes on the market to allow prospective buyers to see them without violating stay-at-home orders.
• Appraisers and home inspectors are adding COVID-19 riders to their contracts and wearing protective gear (such as booties, masks and gloves) during inspections.
• Title companies and lenders are setting up drive-through closings to maintain social distancing and minimize contact.

We’d be remiss if we didn’t note that there’s some risk involved if you choose to visit a home in person or attend a closing where you’re in close contact with people outside of your household. We recommend that our members proceed with caution, particularly those who are in high-risk categories for COVID-19.

Should You Buy or Sell… or Take a Wait-and-See Approach?

The question we’re sure you’re asking is whether we think this is a good time to buy or sell a house. The short answer is maybe. Let’s break it down.

For sellers, it may be worthwhile putting (or keeping) your house on the market because there aren’t a lot of properties listed and that means you may have your pick of buyers. Of course, if you do decide to sell, you should also be prepared for navigating the other side of things – finding a new place to live after your home sells.

For buyers, and especially first-time buyers, there’s another looming question. If you have money saved for a down payment, you may be wondering if the best use of it is buying a home.

Depending upon your financial circumstances and job security, you may decide to wait and keep your down payment savings as a potential emergency fund. However, if your job is secure, then this could be the right time to buy.

If you do decide to buy or sell, it’s a good idea to put a contingency plan in place. Some examples may include:

• A clause that allows buyers a way out of a contract if the pandemic affects their income unexpectedly.
• A clause that frees sellers from financial obligations that they can’t meet (such as home repairs) due to economic uncertainty.
• A lease extension option with your landlord if you’re currently renting and you want to protect yourself if your purchase falls through.

We want our Addition Financial members to be prepared to navigate the housing market at this volatile and sometimes-confusing moment in history. We’re here to help.

Click here to learn about Addition Financial’s mortgage options or to begin the application process.