5 Things you need to know when purchasing a home during the COVID-19 Pandemic
The Covid-19 pandemic has affected so many people in so many ways. Whether you were thinking of buying a new home, or moving to another state, it has put a halt on something in reference to your daily life. Many may be asking the question, is this a good time to buy a home? Well, it depends on the seller, the market, your reserves and your endgame. Here are 5 things you need to know if you are thinking of moving forward with a home purchase during the pandemic.
Thinking about purchasing your first home? Join us us for a First Time Home buyer's Workshop presented by ASII and learn the ins and outs of the home buying process. To register online or learn more see https://bit.ly/2FM6ZrW.
1) Make sure your Job is Secure.
We don’t know how long this pandemic will last, the toll on human life or the length of time before things go “back to normal”. The biggest known to have in this regard is your job security. Some companies may have already quelled concern about layoffs but if your job has not had the conversation with you, speaking with your companies HR Representative about your desire to purchase a home and need for job security will be best before going into the home buying process.
2) Savings: You may need more than you anticipated
You may already know your goals and how home ownership will help you achieve them. More practically, before home ownership you should consider taking a more conservative approach in terms of your emergency fund.
In this market, storing a minimum of 3-6 months emergency fund in a banking account is suggested. This would be on top of housing funds and should include a down payment, closing costs, inspection costs, appraisal, and moving costs. While these costs vary from state to state, here are some cost to consider if you are a Louisiana Resident:
Down Payment: 3%-20% of purchase price
Deposit: 1% of purchase price is subtracted from the cash you would have to bring to closing (e.g. $1000 per 100K purchase price)
Home Inspection: $350-500 (varies depending on sq. ft.)
Plumbing Inspection: $275-$325
Termite Inspection: $350-$400
Appraisal: $300-$450
Closing Costs: 3-6% of purchase price
Moving costs: $75-$100 Hour (assumes insured movers traveling fewer than 50 miles and no oversized options)
3) Credit and Lending: Rates are at all-time lows, but requirements are changing
Credit Requirements are shifting as we speak. Before the COVID-19 pandemic, it was possible to purchase a home with as little as 580 credit score and 3.5% down. Today, you may need a score of 660 or better to get the same loan. For those who were looking for the best rates with good to great credit, this will not be a barrier, but if your score is subpar, you may want to use this time to bolster your score.
4) Pricing is likely to fall long term, but Housing stock may vary over the next 3 to 6 months
Real Estate is about people and property. When it comes to contamination, or repairs, the solution is straight forward. The wildcard is people. Here are some of the reactions we are seeing and will continue to see:
- Sellers are withdrawing houses from markets in fear of contamination.
- Sellers will delay selling properties due to nixed plans to move, upsize, downsize.
- Sellers will offer distressed properties (e.g. fixer uppers, demolition properties, etc.)
- Others will be anxious to sell, even at a discounted rate for great homes.
Ultimately this can lead to a lower percentage of move in ready properties. In some areas, such as the Greater New Orleans area, this is already a problem. For those who utilize soft second funding to purchase could find themselves with a lower number of properties to choose from, effectively taking away the increased buying power from the lower rates.
Another factor we know but is hard to quantify is panic, fear, and financial difficulty. People who are overextended due to job loss or landlords who have tenants that can’t pay and get loan modifications may be forced to sell or may accept lower rent than normal carrying lower cash flow.
Another investor market to watch is those involved in the short-term rentals space. A seller who cannot turn his property into a traditional rental, receive modifications to maintain the mortgage, re purpose housing for self-quarantine in hot spots, or as emergency shelter for the homeless could be forced to sell, otherwise highly improved properties at a great value.
5) Get comfortable with doing business virtually
Work from home has really gone mainstream due to COVID-19. This is also the case for real estate. While real estate is considered essential work in many states, the person to person nature of it could lead to infection easily. With that, many real estate professionals are doing work virtually, from virtual walkthroughs of properties to closings by appointment only. Get used to a more virtual experience during this time. The best thing you can do is embrace this process, getting documents in a virtual format to the required parties as quickly as possible and being flexible is key.
Bonus tip: Be patient and be Safe!
Patience is a virtue. While many industries are changing the way they do business, you may be required to be more patient. People are utilizing new systems and adapting to a new normal. Patience during this time will be a new normal. Lastly, be safe. Follow CDC guidelines and take care of yourself.
By Joseph Roberts Jr. Community Development Officer
Joseph Roberts has been giving financial advice to the Greater New Orleans Area for over 10 years. In his position as Community Development Officer for ASII he specializes in Financial Fitness, First Time Home Buyers Classes and Financial Counseling. Visit asharedinitiative.org for more information on classes and more.
Thinking about purchasing your first home? Join us us for a First Time Home buyer's Workshop presented by ASII and learn the ins and outs of the home buying process. To register online or learn more see https://bit.ly/2FM6ZrW.