The arrival of spring flowers often means one thing — the home-buying season is here. But with the COVID-19 pandemic in full swing in early March 2020 and many parts of the U.S. still under shelter-in-place orders through Memorial Day, this year's home-buying season is anything but business as usual. How will this pandemic affect homeownership in 2020 and beyond, and what should prospective home buyers know before they begin the process?
What COVID-19 Has Changed About Real Estate
Some of the most apparent changes to the home-buying process don't relate to social distancing at all. Instead, down payment and credit score requirements are increasing, lenders are slow-rolling the issuance of loans, and some sellers are removing their homes from the market.1
Many home sellers who once hoped to take advantage of a rising real estate market have paused the sale process until conditions become more stable. Ordinarily, this lower inventory would make it tougher for buyers to find suitable homes within their price range. However, buyers are often suspending their searches as well, which means that lower sale inventory doesn't necessarily translate into higher prices.
Buyers and sellers should also be cognizant of how COVID-19 has affected the logistics of the mortgage process. Delayed closings are far more commonplace now because of reduced staffing among title companies, mortgage lenders, and real estate offices. When they do occur, closings are more likely to be held remotely.
More Stringent Loan Requirements
Early in the COVID-19 pandemic, mortgage interest rates dropped significantly enough to spur many homeowners to refinance their loans. Because of this high demand, lenders have increased their demands on borrowers, requiring them to present higher credit scores and bigger down payments to qualify for the lowest interest rates.
What Home Buyers Can Do
For buyers, the news isn't all bad. In fact, some have noted that the COVID-19 pandemic may provide a boost to homeownership rates among millennials and others who desire stability amid economic and personal uncertainty..2 With this in mind, there are a couple of important steps prospective homebuyers should take to prepare themselves for navigating the changing real estate landscape.
First, homebuyers can benefit from getting a prequalification letter from a lender. Not only can this letter provide important information on how much you can borrow, but it can also help you identify any hurdles or stumbling blocks that might make it a challenge to close.
Homebuyers should also pull a free copy of their annual credit report, which provides detailed information on debts, credit utilization, and payment history. Because these factors can have a significant impact on how much a homebuyer can borrow and what interest rates they'll receive, taking steps to clean up one's credit report can quickly improve the odds of qualifying for a loan. And in a market with limited inventory, the ability to obtain financing quickly can be the difference between having an offer accepted and rejected.
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