Buying a House in 2021: What to Expect

Mortgage rates may creep up before the end of the year, and home prices are expected to climb at a slower pace than in the first half of 2021.

Buying a house is like playing a complicated sport. You need to know the rules and get in shape before hitting the field, and then nimbly maneuver through challenges to win the game.

In 2021, “winning” requires understanding how you stack up against lender qualifications and preparing to compete with other buyers in a hot real estate market.

Here’s what buying a house in 2021 looks like and how to prepare.

More buyers than homes for sale

If you find a reasonably priced house in good condition, you probably won’t be the only one making an offer — even if it just hit the market.

A home sold in June had more than four offers, on average, and 55% of offers were above the listing price, according to a National Association of Realtors survey of its members.

Homes are selling fast. In the first part of 2021, most existing homes sold in less than a month, and this trend continued in May and June, when they typically sold in just 17 days, according to the NAR. “Existing homes” are those that aren’t newly constructed.

Flexibility is important, and you may have to make some concessions to make your offer stand out. For example, if you’re buying and selling a home at the same time, it’ll be tough to beat other buyers if you make an offer contingent on the sale of your current home.

On the other hand, understand the risks of any concessions you offer and don’t make any that you can’t afford. Talk to your real estate agent to understand your local market and how to make a strong offer.

Home prices continue to rise

Home prices zoomed up in the first half of the year across the country and will continue to rise, but probably not as quickly as they increased in the spring. The median existing-home sales price was $363,300 in June, a 23.4% jump from June 2020, according to the National Association of Realtors.

NAR chief economist Lawrence Yun said in July that he expects the pace of price increases to slow by the end of the year.

CoreLogic, a property data provider, also foresees a slowdown in price gains. The August CoreLogic Home Price Insights report predicted home prices will increase 3.2% from June 2021 to June 2022.

Mortgage rates expected to increase

Mortgage rates remain low but are expected to inch up by the end of the year. The 30-year fixed-rate mortgage is projected to average 3.3% in the fourth quarter of 2021, up from an average of 3% in the second quarter, according to a NerdWallet analysis of the latest forecasts by Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association.

Even though rates are generally low, it’s still important to shop around for a mortgage. The rate you’re offered will depend on the lender and your financial circumstances. Contact multiple lenders to compare mortgage rates and fees, and choose the best deal you’re offered.

Digital tools make buying a home easier

Virtual home tours, e-closings, smaller open houses, and video calls have helped keep business going while keeping people safe during the COVID-19 pandemic.

These online tools will continue to ease the home buying process even after the pandemic.

Lender shopping remains critical

Shopping for a home before shopping for a lender is a common home buyer mistake.

Get your finances in order and shop for a lender before allowing yourself to look at homes. Prior to applying for a mortgage, check your credit reports and dispute any mistakes you see and find out your credit score.

To get preapproved, be prepared to provide details about your income, debt, employment, and financial accounts. A mortgage preapproval is an offer by a lender to loan you a certain amount under specific terms. It’s not a guarantee for final loan approval, but it will show real estate agents and sellers that you’re a serious buyer.

Combined with your household budget, knowing the amount you’re qualified to borrow is essential for knowing how much house you can afford.

Credit requirements are still tight

The credit score needed to buy a house depends on the type of mortgage and the lender. Some lenders tightened their credit score and other requirements amid the economic fallout from the pandemic.

Overall credit availability decreased in June to its lowest level since September 2020, after increasing for several months, according to the Mortgage Bankers Association. Lower credit availability means it’s tougher to qualify for a loan.

Down payment requirements vary

Down payment requirements vary by the type of mortgage and the lender but could be as low as 3% for some conventional loans.

But putting down more than the required amount has advantages, especially in today’s market. Higher down payment may give sellers more confidence that your loan will close, which may increase the chances of getting an offer accepted. Putting more money down will also help you qualify for a lower mortgage rate and will decrease your monthly payment.

Source: nerdwallet.com ~ By: Barbara Marquand ~Image: Canva Pro

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