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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” will require understanding how you stack up against lender qualifications, preparing to compete with other buyers and navigating a socially distanced homebuying process until vaccines end the pandemic.
Here's what buying a house in 2021 will look like and how to get ready.
» MORE: Tips for first-time home buyers
More buyers than homes for sale
If you find a reasonably priced house in good condition, chances are you won't be the only one making an offer — even if it just hit the market.
"It is a seller’s market in just about every part of the country," says Christopher Arienti, broker and owner of Re/Max Executive Realty in Franklin, Massachusetts. “Seller’s market” is a real estate term used when there are more prospective buyers than homes for sale.
Christopher Arienti, broker and owner of Re/Max Executive Realty in Franklin, Massachusetts.
It is a seller’s market in just about every part of the country.”
For buyers, this means flexibility is important, and you may have to make some concessions. For example, it's tough to win over a seller in a hot market if you make the purchase offer contingent on the sale of your current home.
"That's like a nail in the coffin," Arienti says.
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 expected to increase
Real estate experts expect home prices to go up in 2021, but not as fast as they did in 2020.
Prices of existing homes are projected to increase 3.1% in 2021, compared with a 6.7% jump in 2020, according to an average of forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association.
Prices vary by season, so when you choose to buy can impact what you’ll pay. Homes are generally most expensive in June and July and cheapest in January and February, according to a NerdWallet examination of market trends across 50 of the most populous metros in the U.S. The analysis used Realtor.com data from 2015 through 2019.
Active home listings are also highest in the warm months, which means you'll have more homes to choose from. But demand is high then, too, so homes sell more quickly. Homes spent an average of 76 days on the market in the lowest-priced months, compared with 51 days in the most expensive months, according to NerdWallet's analysis.
» MORE: The best month to buy a home
Homebuying will rely on digital tools
Buying a home became more challenging in 2020 as the COVID-19 pandemic turned everything upside down. But real estate agents, lenders, buyers and sellers figured out how to make the process work in a socially distanced world. Virtual home tours, e-closings, smaller open houses and Zoom meetings helped keep business going while keeping people safe.
"Going into 2021, that's not going to change," Arienti says. Real estate professionals will continue to do whatever is necessary for consumers to feel confident and comfortable with the process, he says.
Social-distancing regulations vary by state, county and city and will loosen with a successful rollout of vaccines. But Arienti predicts that greater reliance on some online tools to increase efficiency will outlast the pandemic.
What hasn't changed
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 looking at homes, advises Scott Lindner, national sales director for TD Bank Mortgage.
Before you apply, check your credit reports and dispute any mistakes you see, and find out your credit score.
"Nothing is worse than finding your dream home and getting surprised that your credit score isn't what you thought it was," Lindner says.
Scott Lindner, national sales director for TD Bank Mortgage.
Nothing is worse than finding your dream home and getting surprised that your credit score isn't what you thought it was.”
Get your paperwork organized. Be prepared to provide details about your income, debt, employment and financial accounts to get preapproved. A mortgage preapproval is an offer by a lender to loan you a certain amount under specific terms. It's not a guarantee for a 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.
» MORE: Check your credit score for free
What credit score and down payment do I need?
The credit score needed to buy a house depends on the type of mortgage and the lender. Some lenders raised their credit score requirements amid the economic fallout from the pandemic. Near the end of 2020, credit availability was 30% under pre-pandemic levels, according to the Mortgage Bankers Association. Credit availability decreases when lenders tighten their standards.
Some lenders may loosen credit requirements if the economy improves in 2021, but it may still be hard to find a lender if you have a lower credit score.
Down payment requirements also vary by the type of mortgage and the lender, but could be as low as 3% for some conventional loans.
Putting more money down will help you qualify for a lower mortgage rate and will decrease your monthly payment. A higher down payment may also give sellers more confidence that your loan will close, which may increase your chances of getting an offer accepted, Arienti says.
» MORE: Conventional loans for 3% down
Mortgage rates expected to stay low
Economists expect mortgage rates to remain low in 2021 after falling to historic lows in 2020. The 30-year fixed-rate mortgage is projected to average 3% in 2021, down slightly from an average of 3.05% in 2020, according to an average of 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.