In light of the pandemic, many are prioritizing comfort just as much as they are prioritizing safety. This is especially true since everyone is cooped up at home, away from not only their friends and family but their jobs as well. With that being said, many people are investing in their homes to make them more pleasant and plush as they wait for this pandemic to end. Some are even going as far as purchasing new homes. The pandemic has caused interest rates to historically drop as low as 2 to 3%, allowing buyers to save hundreds of dollars off their mortgage payments.
The Pros and Cons of Buying a House during the Pandemic
However, purchasing a home in these trying times has its cons as well as its pros for the buyer and everyone else involved. Although the interest rates have been lowered, it is the result of the heightening unemployment rates. The sudden high demand and the relatively low supply also brought on the sudden increase in prices, so in the end, you will be paying a bit more on purchase. Even brokers are affected in this situation, considering they get their commission from the home buyers’ loans.
Therefore, their earnings are significantly lower. Besides, it may also be a bit harder for your mortgage to be preapproved since it may not be possible to meet with lenders when an emergency such as the COVID-19 pandemic exists. And because the pandemic also limits the number of times you may go out to physically house hunt, you may end up purchasing a property without even seeing it. Thus, you may not be able to investigate your soon-to-be-home thoroughly.
Nevertheless, these have not prevented house buyers who want to take advantage of the situation from reaching out to mortgage brokers to purchase their new home. House hunting during a pandemic when many areas are shut down can have its benefits. There is less competition for the houses in areas where you plan to move. Sellers may be more motivated to sell and give more flexible prices. When this crisis passes, there may be a sudden surge of house hunters back on the market, and prices may escalate due to a more competitive market that benefits sellers rather than buyers. Therefore, taking a few steps forward now are also steps in the right direction.
The 30/30/3 Rule
Due to these pros and cons, it is also good to plan or give yourself a set of rules before you begin house hunting. These can prevent you from acquiring a house you can’t afford, especially during times of crisis. The 30/30/3 Rule was made especially for this problem, with many finance experts even saying it is your safest bet when purchasing a home amidst the pandemic. But what exactly is the 30/30/3 Rule?
It is a 3-step guideline where you ensure that you spend no more than 30% of your gross income on a monthly mortgage, have 30% of the home value saved up in cash, and the price of your home should be no more than three times your annual gross income.
The first Rule helps you save and invest more money, so you have more of a cushion if you lose your job or get a pay cut. On the other hand, the second Rule allows you to give a 20% conventional mortgage. You might not need this, but it means you will no longer have to pay mortgage insurance. The extra 10% will serve as your cash buffer, allowing you to have more funds if you ever lose your job or get a pay cut. Finally, the third Rule gives you a quick way to screen for homes in an affordable price range while also considering down payment percentages. This prevents you from spending too much and stretching yourself thin.
Even though buying a house during the pandemic does seem like a good idea at first glance, it isn’t a decision you should make on the spot. You must first look at your options, weigh out the pros and cons, and ensure you have a good plan and fallback if anything goes wrong. That way, you can be sure you will purchase the best house you possibly can while saving yourself some money along the way.