With the COVID-19 pandemic still very much in the United States, and with money getting tighter, here’s an important question for those eyeing to buy a house: is it the right time to get a mortgage? The answer is yes and no, depending on the applicant’s present circumstances.
Why Now Is a Great Time for a Home Loan
Several reasons will tell future home buyers why today is the right time to secure a mortgage:
1. Home Prices Are Increasing but Still Affordable
Contrary to what others might have predicted, real estate prices went up during the COVID-19 pandemic. This could be partly due to hundreds of people who left their cramped city apartments in favor of bigger homes in the suburbs or less-crowded states. It also explains why the demand for rent went down during the same period.
According to Zillow, the average home price in the country is at $272,000, which is about 9 percent higher than in the previous year. But if home buyers wait until the next few months or the following year, it could already increase by 11 percent.
For those planning to move to Utah, Zillow shared that a home in the state could cost almost $410,000—about a 15 percent increase than in 2019.
However, if one gets a home mortgage today, they may enjoy higher home equity within the next five years. By then, the real estate website estimates that houses in the Beehive State will be worth close to $430,000.
2. Summer Is Still a Couple of Months Away
While it isn’t always true to all lenders, often, home prices are cheaper in the winter than in the summer. One of the reasons is the season itself.
During the winter, fewer people go outside to hunt for a home. Others are busy preparing for the holidays, while they are less likely to have plenty of cash available at the beginning of the next year. It then leads to more supply but lower demand, which drives down prices.
Compare that to summer, where couples and families have more time to spend outdoors. Further, parents are less likely to consider moving to another state or home while children are in school.
Now is the best time to close a mortgage since winter isn’t still far away. Home prices are climbing again, but they are less likely to skyrocket than when the year approaches May and June.
3. Mortgage Rates Are about to Stabilize
Home loan rates fluctuate almost every day. In general, the rates have been higher than they were in 2020.
According to a Freddie Mac survey, the interest rates around the third week of March or before Holy Week rose by 0.08 percent. That means that a 30-year fixed mortgage may carry an interest rate of almost 3.5 percent. This will be the highest since the second half of 2020.
Meanwhile, NextAdvisor forecasts that the interest rates will continue to increase as more Americans receive their vaccines and the economy returns to normalcy.
Some reports suggest that, by the speed of the inoculations, the United States may achieve herd immunity by the summer.
However, the Time partner also believes that the interest rates will hold or stabilize at least until the first week of April. Usually, rates fluctuate in relation to the growth of treasury bonds.
The site says that the yield for this investment vehicle has “cooled off” lately. Moreover, while the interest rates are increasing, they are still below 4%.
Why One Should Wait Later
Some situations may convince home loan applicants to delay their mortgage. One of these is issues with credit scores.
Another surprising finding during the pandemic is the rising average FICO score. It breached 700 due to less reporting on late debt repayments. But experts warned that often the credit score doesn’t reflect the economic situation in real-time.
Further, more consumers spotted errors in their credit reports. About 25% of Americans discovered wrong entries, such as deferred payments marked as late, that can negatively impact a person’s ability to apply for a loan, like a mortgage.
A credit score is just one of the many requirements for a home loan. Yet a potential home buyer may want to check it and the report first before they apply.
Otherwise, they may end up paying a higher interest rate or take up a much lower loanable amount. Others may demand a higher down payment.
Overall, 2021 may be an excellent time to consider buying a house and closing a mortgage. Although property prices and interest rates are increasing, they are still about to take off. Waiting may mean paying more or, worse, no longer being able to afford the house.