If you were poised to buy your first home at the start of 2020, the spread of COVID-19 (coronavirus) and the resulting shelter-in-place orders may have caused you to hit the pause button. Even though life isn’t unfolding as planned, you don’t necessarily have to abandon your plan to purchase a home. In fact, you may just find it’s an oddly ideal time to do so. Stacy Francis, a certified financial planner in Manhattan, told Consumer Reports, “If you have the job and income security, there could be real opportunities coming for a first-time buyer.”
Being a young first-time homebuyer during this pandemic may also put you at an advantage. Paul Hope, in his article Notes on Buying Your First Home in an Economic Crisis notes, “Youth can be an advantage at a time when older buyers may feel safer sitting on the sidelines.” While there will always be risk associated with buying a home, with careful consideration, solid education, and research, you can confidently take advantage of current low-interest rates and buy your first home even during a pandemic.
Extra Savings in the Bank Can Provide Security During Uncertain Times
Job stability should play a big part in your decision to move forward with the home buying process. Ciara Foster, a mortgage loan officer for Reliant Mortgage says in the article The Coronavirus Pandemic is a ‘Defining Moment’ for Gen Z, “You must evaluate your current income flow. No matter how low the housing rates are, it’s not easy to afford that purchase long-term if you don’t have the paychecks to support it.”
Even with a secure job, given all the economic uncertainty across America, experts advise first-time homebuyers to follow their dreams but to do so by taking a conservative approach. Francis advises home buyers to have at least 6-12 months’ worth of living expenses saved before buying.
On top of these extra savings, it is still recommended that you save up a 20% down payment. That means if you’re looking to buy a home priced at $200,000 you’ll need to come up with $40,000 for the down payment. Buying a home with less than 20% of the total mortgage will require you to buy private mortgage insurance (PMI).
You Can Still Take Advantage of Down Payment Assistance Programs
Despite the demands, lenders are facing in response to the CARES Act, and the resulting influx of mortgage forbearance requests, the Down Payment Assistance (DPA) programs have not been affected. While the types of programs vary by state the article Down Payment Assistance: How to Get Help Buying a House lists a few common forms of assistance:
- Grants: Gifted money that does not need to be repaid.
- Zero-interest, forgivable loans: Loans that are forgiven over a certain period if the borrower still owns and lives in the home at the end of the specified period.
- Zero-interest, deferred-payment loans: No payment on the down-payment and closing-costs loan is due until the home is sold. Terms and conditions vary.
- Low-interest loans: The loans must be repaid over a certain period. These loans make homeownership more attainable by spreading the down payment and closing costs over multiple years.
To benefit from these programs there are various requirements, which vary for each program. In addition to being a first-time homebuyer, you typically must also take a home-buyer education course, meet certain income limits, purchase in an approved location, purchase below a maximum home price, and contribute some of your own money toward the purchase.
Many first-time homebuyer education courses, which unlock special lending terms, are available online during COVID-19. Before starting an online first-time homebuyer course, check with your lender to confirm that the selected course is approved. MyHome by FreddieMac is a great place to start your first-time home buying journey and get a clear understanding of what it takes to finance your home purchase.
Find a Trusted REALTOR® and Embrace Technology
Working with a trusted REALTOR® is especially important in a time where social distancing requirements have limited open houses and on-site viewing of homes. Your REALTOR® will be able to help you sift through the multitude of online listings and focus your search on homes that truly fit your needs and your budget. While states are reopening, and guidelines for hosting open houses and in-persons showings are changing constantly, your REALTOR® will have updated information about what is allowed in your area. When in-person showings aren’t possible, REALTORS® are able to offer potential buyers virtual showings and walkthroughs of properties through Facebook Live or similar platforms.
Low-interest rates are alluring but taking advantage of these rates shouldn’t be the only reason you buy your first home. However, for first-time homebuyers who were financially prepared to buy their first home before the pandemic and who remain financially stable, this may be the perfect time to make the leap into homeownership.