How are First-Time Homebuyers effected by Covid-19?
Covid-19 has brought sudden change to the real estate industry, First-time Homebuyers are forced to adapt.
Since the onset of Covid-19, the United States has reached record breaking numbers in initial jobless claims. Nearly 50 million people have filed for unemployment benefits since Covid-19’s occurrence, according to data released by the U.S Department of Labor.
With the United States battling through a recession, banks and lending institutions have responded by tightening their guidelines for prospective first-time home buyers.
For those gearing up to purchase your first home, Lenders are meticulously searching for first-time homebuyer’s job verifications. In a dwindling economy, banks want to be sure they are lending to someone who can afford to make monthly mortgage payments and somebody who has job stability. Buyers should be prepared to submit pay stubs and banks statements.
A good rule of thumb that banks use to gauge the price range that you can afford is by taking 30% of your annual income. To put that in context, say you make $100,000, the most you can afford is $2,500 monthly ($100,000 X .30 = $30,000/ 12 = $2,500).
To incentivize buyers, the Federal Reserve has drastically lowered interest rates to create movement in markets.
The main two loan programs offered to first-time home owners are Federal Housing Administration, better known as FHA, and Conventional.
“Depending on the credit worthiness of the buyer, both FHA and Conventional programs are offering interest rates as low as 2.5-5.5%. Interest rates fluctuate based off of the borrower’s credit score, down payment amount, Loan to Value Ratio (LTV), debt, and property type”, says Derrick Abbott, Senior Loan Officer, at Supreme Lending.
Having an adequate credit score will bring prospective buyers great relief when it comes time to working with their loan officer to get pre-qualified for what they can afford.
“The minimum credit score for FHA loans is 580, while for conventional the minimum credit score lenders require is 620. Ideally, 720 and over is the magic number. With a 720 credit score, buyers will receive better interest rates. Also, those who receive conventional loans will pay less in mortgage insurance, if they put down less than 20% as their down payment” says, Luis Hernandez, Senior Loan Officer, at Van Dyke Mortgage Corporation.
Covid-19 has also, forced the home showing process to adapt to societies current health concerns.
“Realtors and their clients viewing homes now must wear protective face masks and viewers are encouraged to be conscious of touching less things on home visits. 3D virtual home tours are becoming hot and is forcing agents to become more tech savvy”, according to Sherman Milton III, Florida realtor.
Now that you are aware of the recent changes, you may be wondering, is now a good time to take that next step and go out and purchase your first home?
“It all depends on your personal situation. If you check off all the boxes that lenders are seeking in applicants, have job stability, enough money saved up, and do not plan to move in the next few years, the answer is yes”, states Sherman.
After reading, if you don’t feel ready just yet, that’s fine. Sherman advises future buyers to use this time to save money and work on their credit.
Covid-19 — has forced us to make many lifestyle changes. We have ample time to reevaluate and prioritize our life’s necessities. If becoming a homeowner is goal of yours use this time to make those necessary adjustments, so when your time comes to take that step you will be well prepared.