In this topsy-turvy COVID-19 world, there are still home buyers and sellers that are looking to relocate or downsize. Buying a home is one of the biggest financial decisions you will make in your life. It is always important to get your finances and priorities in order before looking at houses, especially in these challenging economic times.
(1) Stable Employment
Unemployment in 2020 is extremely high because of the COVID-19 pandemic that essentially shut down the world’s businesses. If you are planning to buy a home and obtain financing for it, you should be able to demonstrate job stability particularly in this time of uncertainty where there is concern another wave of COVID-19 may occur later in 2020 or early in 2021.
If your job status has been erratic or you believe it could become unstable if there is another COVID-19 outbreak, it may be prudent to put your home-buying plans on hold until things are more certain.
(2) Pay Down Debt
No matter what the world economic situation is, you need to have your debt down to manageable levels when applying for a mortgage. Your credit cards, student loans, and car loans will be closely scrutinized by a potential lender.
It is practically impossible to not have debt especially in these times; however, make smart choices about your debt. How can you do this? It varies depending on your financial situation. Some will consolidate credit card balances at a more attractive rate; some will refinance a car loan to free up more money for a mortgage payment.
(3) Other Properties
Are you selling your current home to buy another home? This introduces a lot of new factors. For instance, can you temporarily manage two mortgage payments if the house you are selling does not sell before you purchase another? If not, you may need to purchase a new home contingent upon the sale of your existing house. This strategy works if the owner of the home you are buying is willing to work with you and be flexible or if there are not a lot of competing offers to buy the home outright and immediately.
(4) Down Payment
A down payment is vital (even if people tell you otherwise). Just do the math, a down payment deducts from the overall mortgage you need to pay on the house (plus the interest) over the term of the loan. Gathering money for a down payment can be tricky since a lot of people used their emergency funds to weather the COVID-19 economic storm. Do not rob your emergency fund to use for a down payment.
Finally, and possibly most importantly, do not buy a house that renders you “house poor.” This means your mortgage payment and associated monthly bills (electricity, cable, etc.) should not be so substantial that you have no cash left in your monthly paycheck for your other expenses including your emergency fund or contributions to your retirement account.
Though the COVID-19 pandemic and current economic situation can make it challenging, home buying is still a possibility. Keep the factors listed above in mind as you prepare your finances and begin to shop for a new home.