Is now a good time to buy a house? What home buyers in 2021 should know

2021 is a great time to buy a house, for some, there’s never been a home buying market like this one. The ongoing COVID-19 pandemic has made 2021 a singular time to become a homeowner if that’s one of your goals this year. Mortgage rates are still near record lows, and work-from-home policies mean buyers have more flexibility to choose where they’ll live. However, high unemployment and an uncertain economy could make it hard for some buyers to get financing. So, is it a good time for you to buy? Here’s what you should know.

The 2021 housing market: An overview 

Interest rates plummeted to historic lows last year, and they’ll likely remain low for the next couple of years. That’s great news for borrowers — it means lower monthly mortgage payments and bigger home buying budgets. However, low rates have also generated more bidding wars and driven home prices up. There are fewer homes on the market and house hunting has become more competitive. You’ll likely have to move fast when you find your dream home. And you should figure out ahead of time how much over the asking price you’re willing to pay if it comes to that. The massive move to work-from-home may also have you thinking about a place with enough space to accommodate a home office, or simply spread out a little now that everyone works, studies, and socializes from their living rooms. Work-from-home policies have given many people the freedom to reconsider where they live, allowing them to relocate to less expensive or otherwise more desirable areas without sacrificing their jobs.  Whatever your reasons for entering the housing market, 2021 could be your year to become a first-time home buyer.

Below, we’ll address some key questions and concerns you may have about buying a house during the pandemic. 

Is buying a house during COVID a good idea? 

The buying process have gone online. For instance, some sellers or agents may offer virtual tours rather than in-person showings, and you may opt for an online mortgage application rather than applying at a brick-and-mortar bank or lender. Depending on who you work with and where you live, the home inspection and closing process may happen virtually as well. 

Your home buying prospects could also depend on your profession in 2021. If you work for yourself or have non-traditional income (such as being a gig worker or seasonal worker), some lenders may be reluctant to work with you right now because they’re more risk-averse due to COVID. However, you can ask lenders about your situation before submitting an application, and they can advise you on exactly what documents and income proof you’ll need to qualify.  If you have a steady, reliable income and your business is not at risk during COVID, you should still be able to get a loan. If one lender denies you simply because you’re self-employed, try again with a few others that will look more holistically at your application.

Are you eligible to buy a house this year?

If you’re wondering whether you should buy a house this year, the first place to look is your personal finances. Factors like your credit score, savings, income, and debts will determine whether you qualify for a mortgage, and how much house you can afford.

How much down payment do I need? 

Expect to put down at least 3% to 3.5% on your new home. If you’re buying a home worth $300,000, that means you’ll need at least $9,000 to $10,500 saved for a down payment. You need to budget for closing costs, too. These typically add 2% to 5% of the purchase price to your upfront fees. That’s another $6,000 or more on a $300,000 home loan. Keep in mind, mortgage loans with less than 20% down charge private mortgage insurance (PMI). This adds to your monthly bill, but can help you buy a home much sooner.

Can I buy a house without a down payment?

If you’re a veteran, or if you are buying in a rural area and meet certain income limits, you may be able to qualify for a 0% down payment VA loan or USDA loan.

the job. Mortgage lenders will also look at your credit score and your payment history while you were unemployed, as well as your down payment amount.  

Do you have to be married to buy a house? 

No, you do not have to be married to buy a house. You can qualify for a mortgage as an individual borrower, or you can buy a home with a partner to whom you are not married. Buying a home as a single borrower simply means you need to qualify for the loan on your own merits. You will not have a partner’s income to supplement your budget. If you’re unmarried but want to buy a home with a partner or roommate, you can apply for the loan as co-borrowers and count both your incomes toward the mortgage. As long as you qualify for the mortgage, it’s no harder to buy a home when you’re single than when you’re married.

The home buying process in 2021

What’s the first step when buying a house? 

The first step toward buying a house has not changed during the COVID pandemic. Potential home buyers should start by getting pre-approved for a mortgage. A preapproval letter does not guarantee that a lender will work with you, as they will vet your finances more closely during the formal application process. But it does give you a sense of whether you’ll qualify for financing, as well as how much you might be able to borrow. Not only does this help you focus your home search on properties you can afford, it tells real estate agents and sellers that you’ll likely be able to go through with a purchase once you’ve made an offer. 

Do I need a real estate agent to buy a house?

It’s a good idea, and they can be quite helpful. A real estate agent generally has deep knowledge of the local market, and they do a lot of the legwork for you. Once you’ve told them your price range and the type of property you want to buy, they can scour listings for suitable homes and arrange showings for you. A real estate agent or Realtor can also negotiate on price and help you hone your offer, not to mention manage a lot of paperwork and logistics on your behalf. 

Common financial questions for first-time buyers

Many first-time home buyers focus on their down payment. But there are all sorts of other fees associated with buying a home — some optional and some not.

What are the fees associated with buying a home? 

When you buy a home, you’ll pay closing costs of roughly 2-5% of your mortgage loan. These can include: 

• Lender origination fee
• Mortgage points (optional)
• Prepaid property taxes and homeowners insurance
• Inspection fees
• Appraisal fees
• Title fees 
• Homeowners Association (HOA) fees 

You may be able to negotiate some of these fees with your lender. In some instances, your seller may be willing to pay your closing costs in exchange for your willingness to pay full price or more than their asking price. Or, you can ask your lender to cover part of your closing costs and pay a slightly higher interest rate in exchange. This is known as a “lender credit.” Before choosing a loan, get quotes from several lenders and compare the loan estimates they provide you. A Loan Estimate will break down all of the costs and fees associated with the loan, so you can do a side-by-side comparison to see where you’re getting the best deal. 

Do you get a tax break for buying a home? 

The Biden Administration has proposed a $15,000 tax break for first time home buyers. But as of this writing, the measure has not yet been passed. You may be able to deduct the interest you pay on your mortgage on your annual tax return. This benefit only applies if you do not choose the standard deduction and you instead itemize your deductions.

Taxpayers who itemize their deductions and are single or married and filing jointly can deduct interest paid on up to $750,000. Those who are married and filing separately may deduct interest paid on up to $375,000. 

Do I qualify to buy a house now?

The best way to find out whether you qualify to buy a house is to assess your credit score and your current debts. If your score is 580 or above and your debts are relatively low, it might be a good time to buy a home. To learn more about your options, apply for a pre-approval to find out how much a lender may let you borrow. Be sure to request quotes from several mortgage companies and compare rates and offers before you buy.  

Adapted from The Mortgage Reports Contributor by Casey Morris