Buying or refinancing during COVID-19
Should I buy or refinance my home during a pandemic?
As a homeowner or potential homeowner, you may be asking yourself what you should do about your plans to buy a house, refinance your home or tap into your home’s equity to start a long-awaited home-improvement project. Big financial decisions are scarier in light of the U.S. economic recession and unemployment and a global pandemic.
Here are four things you should consider as you decide what’s right for you.
- Evaluate your financial situation. Are you ready to apply? Consider:
- The amount you have saved in order to take out a loan and cover potential financing costs.
- Whether your income remained stable during the pandemic. Stable, verifiable income is essential.
- What kind of equity you may have in your current property.
- How is the local housing market performing?
- How is your credit?
- Mortgage and home equity interest rates are at historic lows. According to Freddie Mac (FHLMC) historical rates, rates are at 50-year lows, which means you’ll pay less on your interest payments right now. We don’t know how long the low rates will last, so if you choose a variable interest rate on your mortgage or home-equity loan, your interest rate may change based on the type of loan you have. With variable rate products, rates change based on the index utilized for the respective product. For example, if you have a 5/5 ARM, the rate would be fixed for five years, then have the potential to change, but then be fixed for the next 5 years, depending on whether the index adjusted. It would have the potential to change every five-year period up to 30 years. If it was 7/1 ARM, it would be fixed for the first seven years but could change yearly after that. Each product has a floor and ceiling, meaning it cannot go above or below a certain threshold.
- Home values remain stable despite a slow housing sales market. Although the pandemic pushed the U.S economy into recession and home sales are declining, home values stayed consistent. Realtor.com reported that home sales are expected to decline by 1.8% in 2020, but median home values are projected to rise by .08%. For some perspective, overall cumulative home values have increased by over 50% in the last 10 years, according to Realtor.com.
Based on these trends, this means that your house – and any upgrades you make – are continuing to increase in value.
- Find a lender that can factor in your unique circumstances. Many credit unions, such as Everence® Federal Credit Union, have the flexibility to offer options including adjustable rate mortgages, fixed rate mortgages, home equity term loans, and home equity lines of credit.
Credit unions like ours can offer flexible underwriting and lower closing costs for mortgages compared to larger lending institutions. And make it easier – and cheaper – to refinance or get home equity loans by not requiring an appraisal and, in most cases, allowing you to skip title insurance.