Jo Dallas is a Senior Vice President and Residential Production Manager in the Peoples Bank Real Estate Loan Division.
Early in 2020, just as we were adjusting to lockdown measures and many people were shifting to remote work environments, demand for mortgage lending skyrocketed as interest rates hit historic lows. As it became clear that the pandemic would have a prolonged impact on our lives, new trends in the real estate market began to emerge. For example, we have seen the emergence of so-called Zoom Towns as would-be home buyers seek larger homes at lower costs in more rural areas. We have also experienced a spike in requests for renovation loans as buyers, frustrated by a lack of inventory, decide to make improvements to their existing homes, such as the addition of a home office or a functional outdoor space. As the events of 2020 continue to impact the real estate market in 2021, here are a few things potential homebuyers should keep in mind as they navigate the market.
Preparation is Critical. I always tell my customers that they need to participate in the process in order to succeed. With new homes on the market getting multiple offers, often well above list price, buyers need to have their finances in order and be in a position to make an even more competitive offer. This can require quite a bit of work on the buyers’ end to comply quickly with requests from the lender to ensure they maintain their pre-qualification status and are ready to move forward at a rapid pace.
Be Ready to Take on Some Risk. With the current market conditions pushing customers to the point of desperation, homebuyers should be ready to assume some risk in the process. For example, many homebuyers will only have the chance to see a new home once before making an offer. Likewise, they may decide to waive the inspection or certain contingencies to make an offer more attractive. These are things people may not be accustomed to doing, so it is always a good idea to discuss with your lender ahead of time what you are able and willing to do to achieve your goals.
Understand the Requirements for Pre-Qualification. Due to the current economic climate and surge in unemployment as a result of the pandemic, mortgage loan investors, such as The Federal National Mortgage Association, commonly known as Fannie Mae, and The Federal Home Loan Mortgage Corporation, known as Freddie Mac, have raised the standards borrowers must meet to qualify for a new home loan. The changes have predominantly impacted borrowers who have been laid off, as well as self-employed borrowers. Not only are some investors requiring higher minimum credit scores, but they have also tightened their guidelines in other areas. For example, to ensure the borrowers’ financials are current, lenders will require verification of employment within five days before signing. Self-employed borrowers will need to provide an income statement, a balance sheet, and three months of most recent business asset statements prior to signing. It is somewhat of a Catch 22 for buyers. If you are looking for a home for an extended period, you will need to be ready to move fast, but you will also need to maintain your pre-qualified status, which could require taking time to submit these, and other documents each month.
Expect the Status Quo to Continue. As the economic impacts of the pandemic continue to create an increased risk for investors, and as other factors – such as record-low interest rates and widespread housing shortage – continues, we do not expect conditions to change for home buyers for the next six to twelve months. This should not deter potential homebuyers from pursuing their goals, but it does mean they should start planning as early as possible and getting their financial picture in order. Speak with a lender about your credit history, any debt you may hold, and what it may take for you to be in the best financial shape possible when you are ready to make an offer on a home.
Jo Dallas is a Senior Vice President/Residential Production Manager in the Peoples Bank Real Estate Loan Division. She has been serving customers in the real estate industry for over 30 years.