The market is a lot different from what we are used to because a lot has changed. Should you buy a house right now? What should you expect during the purchasing experience? We’re glad you asked! We have the answers to these questions and more.
Is Now a Good Time To Buy a House?
Figuring out if now is the right time to buy a house isn’t an easy question to answer. There are so many variables that must be factored in before you can fully understand whether or not now is the right time for you.
Nowadays, interest rates on mortgages are near all-time, unprecedented lows. The lower your interest rate, the less your monthly mortgage payment will be and the more money you will save over the term of your loan. But how much can you really save with a 0.5% difference? Well, it’s actually a lot!
|Option 1||Option 2|
|Interest Rate (Fixed)||3.25%||3.75%|
Without question, lower interest rates are playing a role in motivating people to purchase a house in 2021. But it’s not the only factor.
With remote work becoming increasingly more popular, people no longer need to live near their places of work, which are often within city limits. In turn, waves of people are leaving cities in search of somewhere to live in the suburbs. That means a lot of people are purchasing homes at greater rates than ever before, thereby increasing demand while decreasing supply.
However, the basic economic rule of supply and demand is no stranger to the housing market. Since homes are in greater demand, the prices of homes are skyrocketing. Therefore, although you’re saving money with a lower interest rate, you might end up paying anywhere from 15% to 25% more for a house in 2021 than what it would have sold for pre-pandemic.
Are You Eligible To Buy a House This Year?
Your personal finances will play a vital role in determining whether or not you are eligible to purchase a home. Factors such as your debt-to-income ratio, your credit score, your employment status, and the amount of savings you have will heavily impact your home buying eligibility.
Not only do you need to meet the loan requirements, but you’ll also need to have enough money for a down payment. Depending on the financing route that you choose to pursue, you’ll have to put down anywhere from 3.5% to 20% on your home. Closing costs, which range from 2% to 5% of the purchase price, must be taken into consideration.
What’s Different About Buying a House in 2021?
The sizzling hot housing market has changed the purchasing experience as we once knew it. Here are some of the most noticeable changes thus far.
Appraisals have become more high-stakes
There’s a lot depending on the appraisal process. In order to get approved for a loan, the house must appraise at or above the desired loan value on the home. If the house appraises for less than the desired loan value, which is how much money you are asking to borrow from the lender, then you as the buyer must make up the difference.
For example, if the house costs $300,000 and you planned on purchasing it with a 10% down payment, you’d need a loan for $270,000. If the house is appraised for $250,000, then you’ll need to either walk away from the deal or make up the $20,000 difference with a larger down payment.
You may want to make a large down payment
According to a recent survey led by the National Association of Realtors (NAR), sellers are less likely to accept offers that aren’t conventional loans.The survey found that only 30 percent of homebuyers using a government-backed loan had their offer accepted compared to the 89 homebuyers with conventional financing. With that being said, conventional loans typically require a 20% down payment or private mortgage insurance. As for government backed loans, down payments are usually lower.
A pre-approval letter can make an impact
A pre-approval letter tells sellers that you are ready, willing, and able to purchase a house. Given the competitiveness of the current real estate market, real estate agents may not be willing to work with you unless you have been pre-approved for a mortgage.
Additionally, if you were to find a real estate agent willing to work with you, it’s possible that you’d get outbid by another potential buyer who is closer to the point where they can close on the deal when you’re not.
What to Expect When Buying a House in 2021
Let’s compare some of the advantages and disadvantages of purchasing a home in 2021.
Current market advantages for homebuyers
Some of the most common advantages homebuyers have in today’s housing market include the following:
- Interest rates are near an all-time low. As shown above, this can add up to significant savings over the course of the lifetime of the loan.
- Buyers can live where they love if they are working remotely. Instead of worrying about how easy it is to access the train, or how far away the office is, buyers can move into an area they love and work remotely as long as their place of employment allows that.
Current market disadvantages for home buyers
Just as there are many advantages of the current housing market, there are also many disadvantages. Let’s take a look at two of them.
- The prices of homes have skyrocketed recently. For example, a house that costs $300,000 today could have sold for $250,000 in late 2019 or early 2020.
- Although there isn’t any skepticism that the market will correct itself in the near future, you never know what could happen. There is some added level of risk to purchase such a large asset at its peak valuation. What goes up must come down, and many people believe the housing market will recover, or pull back, in the near future. But what exactly does that mean? Well, if you purchase a house for $300,000 before the market corrects itself, the house may depreciate in value by dropping down to $270,000 during a market correction. In hindsight, you may have wished you didn’t purchase as early as you did because you could have purchased it for $30,000 less if you had waited.
2021: A Year Like No Other
Without question, 2021 has been a year like no other for the housing market. Folks are leaving the cities in favor of the suburbs, and they are fleeing city life rapidly. This mass migration is causing the most basic economic rule of supply and demand to kick in, and house prices are quickly on the rise!
Despite the prices of homes increasing at a rapid rate, buyers are still purchasing homes. These buyers no longer need to live in or near the city as their place of employment lets them work remotely. Additionally, apartment living just isn’t as comfortable anymore because the kitchen table can only function as a legitimate office for so long. People want more space, and they are finding that space by purchasing a new home in 2021.
This page last updated: March 21, 2022