Digital Tours and Strict Lending Guidelines: What to Expect When Buying a Home During a Pandemic

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Points of Interest

The pandemic has changed the way many prospective homeowners will experience the home buying process. Here’s what to expect when buying a home during these turbulent times.

COVID-19 has encroached on all areas of our lives, including the real estate market. Although there are still buyers and sellers out there, some sellers feel cautious about strangers walking through their living space and have pulled their homes from the market temporarily to cut down on risks related to coronavirus. Meanwhile, buyers are feeling the pinch as lenders balk at people with lower credit scores and shy away from jumbo and non-qualified loans, trying to get ahead of the inevitable increase in forbearances and defaults.

This is uncharted territory, and first-time buyers especially may feel a bit unmoored. If you’re planning to buy or sell a home in the next few months, here are some of the main things you may encounter, whatever side you fall on.

Buying a home in a pandemic: What to expect 

1. Loans will be more difficult to obtain, even though interest rates are hitting record lows.

Mortgage interest rates behaved erratically directly following the financial market downturn in March 2020, swinging upward even after the fed lowered the interest rate. That instability has since subsided — interest rates on conventional fixed-term mortgages have now hit historic lows.

Low rates are typically great news for buyers. But there is a catch in this case — in fact, there are a couple of them. The first issue is that some sellers have pulled their houses from the market, decreasing inventory. Low inventory was already a problem in prime markets throughout the United States, especially when it came to affordable properties. And now, with lower interest rates, there will be even more competition for homes at the lower end of the market.

Compounding this problem is the tightening of lending markets in anticipation of changes brought on by the current recession. Lenders are leery of people with lower credit scores and higher loan-to-value (LTV) scores, which are indicators a person could later default on their loan obligation. They are also issuing fewer jumbo loans — loans above the conforming limit of $510,400 — and fewer non-qualified loans. Overall, buyers can expect to see more reluctance from lenders, especially if they have less-than-perfect credit or want access to a large loan.

2. Self-employed individuals can expect to go through extra hoops.

As a result of COVID-19, some mortgage loan underwriters are now requiring audited profit and loss statements for self-employed individuals. Having seen so many businesses fail in the past few months, small businesses in particular, lenders are concerned about whether businesses can continue to operate in this environment.

If you’re a small business owner or independent contractor, this could be a real impediment to securing a mortgage loan, especially if your business has been negatively impacted by the pandemic.

3. Touring homes may not be in person.

Truthfully, a lack of in-person tours and open houses may not change the way homes are sold. Most prospective homeowners — a full 84% — head online to check out available listings before they do anything else, and many realtors used virtual tours before COVID-19 even struck.

“I’ve always done virtual tours on my listings,” said Jason Heffron, Broker Associate with the Juice Real Estate Group, “I hire a photographer to shoot a matterport tour.”

“The difference now,” Heffron said, “is that some buyers are relying solely on those tours without visiting the home, but that is still rare. Most buyers have continued visiting homes throughout the entire pandemic.”

4. There will be more opportunities for investors.

Right as the pandemic hit, foreclosures had dropped to a low point since the Great Recession, declining 3% in March 2020 over the prior year. But most analysts expect this trend to reverse — unless drastic steps are taken to prevent those homeowners currently seeking forbearance from eventually losing their homes.

What is bad news for some opens up the “scratch-and-dent” market for others, including prospective buyers who’d otherwise been priced out of prime real estate areas.

Why has the process of buying a home changed?

Uncertainty is the primary cause of change in the home buying process right now. No one knows exactly how long it will take for the economy to recover, and until it does, there will be individuals who will be forced to sit out the home buying process because they no longer qualify for financing. There will also be sellers who decide to wait it out.

This is not a zero-sum change, though. Some experts predict that the home prices will fall 2% to 3% by the end of 2020, providing a good opportunity for bargain seekers who can get mortgage loan financing.

Potential issues with buying a home during a pandemic

The primary issues during a pandemic are low inventory and tighter lending rules, both of which adversely impact the more affordable end of the housing market. People with bad credit and those who are self-employed may find themselves unable to get financing to purchase a new home.

A lesser problem is risk-adversity. You may not want to tour homes in person, which means you could overlook issues that don’t come up in disclosure or the inspection report.

According to Audrey Eaton, a regional Mortgage Loan Originator with Bar Harbor Bank & Trust, the pandemic has “slowed down the schedule for home inspections because there are new safety protocols in place.”

Tips for real estate transactions during a pandemic 

  • Get your finances in order. It may be worthwhile to pay down some credit card debt to lower your LTV and raise your credit score before approaching a lender.
  • Prepare to ask questions. If you’re using digital tours to narrow down your home selections, you’ll need to rely more on your real estate agent to answer questions about things you aren’t likely to see on video, like traffic noise or the condition of the flooring.
  • Act quickly. It’s going to be a buyer’s market, but there will be swift competition. Make sure to get an offer in on your dream home sooner rather than later.

The final word

The brave new world of home buying during a pandemic isn’t too different from the pre-pandemic situation — at least not yet anyway. Sales are rebounding, and the dip to home prices is predicted to be minor. Still, you can expect nervous and tight-fisted lenders and perhaps some reluctant sellers going forward.