Are you ready to take the plunge into homeownership in 2021? As we begin the New Year fresh, it is now starting to become clear how the coronavirus pandemic has reshaped the buying process.
While a few steps have slowed down, such as getting approved for a mortgage, most of the steps in the home buying process have significantly sped up compared to last year, thanks to the changing household needs and low mortgage rates that result in intense competition.
According to the National Association of Realtors, nearly 725 of houses sold in October 2020 went to contract in less than thirty days, down from 36 days in October 2019.
Studies suggest that currently, homes listed for sale don’t stay on the market very long. A contract is placed on properties quite fast. Thus, days on the market have actually decreased without home prices spiking up.
So, what can you expect when buying a home in 2021? What are the new rules for purchasing a house?
1. No More Spring Home Buying Season
The lockdowns and restrictions on home tours due to the pandemic threw the real estate market for a loop in the spring, usually the busiest time of the year for sales. As a result, a shift in seasonal pattern occurred—the demand for housing remained low initially but started to recover slowly, continuing right into the fall of 2020.
In October, the existing home sales hit a seasonally-adjusted annual rate of 6.85 million—the fastest pace since 2006. This surge in sales offset the spring market losses, and now with the COVID-19 vaccine becoming available, the mortgage rates are expected to reach around three percent while the market continues to grow.
Typically, in an average year, buyers would probably base their home purchasing decision around the start of the school year. But in 2020, low mortgage rates and the rise of remote work have been two factors driving home buying decision. Remote work drove people to seek better solutions for the problems they faced in the COVID-19 era—suddenly, homes were no longer big enough.
2. Begin Your Search Online
The pandemic has also altered the way potential buyers shop for homes. For instance, virtual home tours provide a better sense of how a property looks and flows than photos can.
While a few agents had started using video pre-pandemic, most real estate agents started making their move actively toward digital tools, such as 3D imagery to market homes for sale once the pandemic hit.
Furthermore, anecdotal stories suggest that online home tours and shopping have significantly reduced the number of houses that homebuyers’ visit.
3. Getting Pre-Approved for Mortgage to Win Bidding Wars
According to NAR, there were 1.42 million homes on the market by the end of October 2020. However, based on the current demand and pace of sales, this number will last only a 2.5-month supply—a record low in the housing market history.
In overly competitive markets, buyers should line up financing and prepare themselves to tackle simultaneous offers in a bidding war. Many brokerages state that more than half of the offers made by their agents since May have faced competing bids.
In fact, in 2020, multiple offers coming in for a home from investors to mid-level buyers paying with cash was quite common. Nevertheless, when this happens, it triggers bidding wars between various potential buyers, causing the price to be ultimately pushed a little higher.
In such a scenario, getting pre-approved for a mortgage before starting a serious home for sale search will help you stand out from the competition.
Though sellers look at the price being offered, they will also see if one buyer has an easier path to closing than the other competitive offers. So, with a pre-approval for a mortgage of the right size, you will have a leg up.
4. Figure Out What You Can Compromise On
Often, finding a home involves locating the middle ground between what you want and what you can afford. If you have a champagne taste on a beer budget, consider calculating the down payment, property taxes, and lender’s fees to determine what a house will actually cost.
Presently, higher deposits, escalation clauses, and full-price offers are quite common. A few homebuyers are even abandoning appraisal and inspection contingencies to make their offers more attractive to sellers. Some even go as far as allowing the sellers to continue living in the house after closing.
Experts recommend getting well acquainted with the local housing market when home hunting. You will be able to find different submarkets, even within a metropolitan area.
There might be a specific hot neighborhood where a home comes on the market priced exceptionally well, and receiving 10 to 15 offers. But a few neighborhoods away, there might be another home with the same amenities, but at a lower price and fewer offers.
5. Get Ready for The Underwriting Process
Thanks to the pandemic, most mortgage providers are now offering borrowers the ability to complete and sign the application package online, sending disclosures electronically, and enabling remote notarization. What was once a paper-heavy and overwhelming process is now streamlined and significantly less time- and effort-consuming.
Additionally, lenders are embracing the idea of seller reticence to let people enter their homes through appraisal waivers, which offers qualified applicants the option to discard the traditional method of home appraisal. A few appraisers are also using drones or tools such as Zoom to see the interiors and exteriors of a property.
6. Wait for The Closing
The glorious word ‘closing’ is the perfect ending to a home buying journey. But don’t hurry with the closing, instead prepare to wait.
Unlike in other cases, the pandemic has increased the time it takes to complete the mortgage closing process. Various factors contribute to this issue, including:
- The low mortgage interest rates and high demand that has resulted in the lenders being swamped with processing loan applications
- The underwriter rejecting the loan due to a change in your credit score
- The home inspection revealing problems that need to be addressed
However, once you reach the final step, the closing will be much quicker than in the past. Unlike with the traditional closing process, many states now allow for remote notarization—title companies and agents don’t have to be in the same physical space during closing. Furthermore, lenders have also started accepting electronic signatures.
The stacks of paper that have been once the norm of a home buying transaction might soon be a thing of the past—the loan paperwork with title, tax, and other legal documents that totals around 200 pages.
Have Questions? Ask Kami!
Give Kami Gerald a call to learn more about local areas, discuss selling a house, or tour available homes for sale.