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There are no rules on how to deal with major life events amidst the unprecedented upheaval of COVID-19, but there are certainly significant situational indicators signifying that individuals need to change their plans. When counties, cities, and states are rolling out new regulations every week, no one can truly claim to be an expert. And, as mentioned in a first-person account from a homebuyer last week, even those who we look to as experts -- the lawyers and lenders -- are as baffled as anyone else.
"In terms of homebuying in general during this time, there are strong forces on both sides," says Shawn Low, head of operations at digital lender Better.com. "On one hand, we have lower mortgage rates and limited housing inventory. On the other hand, spikes in unemployment mean consumer sentiment will also likely go down during this time."
The startup claims to have seen a 200% increase in mortgage applications since March 1. So what that tells us is that no matter how volatile the times, people were still optimistic about the long term. That being said, things change every day, and certain developments will necessitate a change in plans -- regardless of how far along in the process you are.
Have you had major income/asset changes?
When the markets deliver a wallop to your investment portfolio, or extreme "social distancing" measures temporarily shut down your workplace, your original loan application is likely to fall through because your income and credit figures have changed. If you've got severe doubts as to whether you'll be able to afford the loan in your new circumstances, be honest with your lender.
The sad, bad news is, if your assessment is correct, you'll likely be denied at closing. The silver lining is that your earnest money deposit (EMD) won't be at risk, and at least you won't be in the even scarier situation of just starting out with a mortgage that you have no way to pay.
What kind of signals are you getting from your lender?
While the aforementioned lower mortgage rates triggered an application frenzy among would-be homebuyers early in the crisis, many lenders have been increasingly cautious as stay-at-home and other "lockdown" orders have begun to massively impact the economy.
If you're midway through the mortgage process, and/or your application was borderline with mediocre credit scores or debt-to-income (DTI) ratio, you may find that your lender is leaning toward putting you in the "too much risk" bucket and asking for more documentation, such as verification from your employer that your job will be safe for the next year or proof that you have 12 months of mortgage payments in savings.
While this can be deeply frustrating in the moment, given the current instability of things, if you can't mitigate your own risk to the underwriter's satisfaction, it may be a sign to stop pushing. Take the denial, and stay where you are until things normalize.
Did appraisals or inspections turn up major defects within the home?
Now is not the time to begin major home improvement projects, so even if you're in love with a place, if the home inspection or appraisal finds significant structural or systems issues, you may need to walk away rather than negotiate for a big reduction on the asking price, as more DIY-minded individuals might have done in the recent past. Even the best project managers among us will face unknown challenges undertaking a roofing project or kitchen remodel in the middle of a pandemic.
If the inspection or appraisal found only minor defects, the quick solution for a motivated seller is to offer credits toward closing, rather than handling the repairs prior to closing.
"If sellers are able to offer closing credits instead of taking on repairs themselves, that would certainly help to expedite the homebuying process," says Shawn Low.
What are the regulations in your state, county, and city?
This is perhaps the biggest variable that can come from left field at any time and determine one way or the other whether your home purchase can proceed. As different cities, counties, and states come up with their own shelter-in-place rules, and then tweak them to account for extended timelines, the list of essential service providers and acceptable reasons to leave one's house is ever-changing.
If you live in Boston or San Francisco, you may need to delay or back out of closing because construction and pretty much everything else has shut down. In most other places, however, homebuying and moving still continue -- albeit in a faltering, uncertain manner -- with almost all related services deemed essential.
"Backing out is not easy. If you're way far in the deal, i.e. appraisal, title, etc., do not go that route," one recent homebuyer said her lawyer advised her. "You'll lose a lot of money and cause a lot of problems."
Backing out can be the scared reaction or the smart move
Standard strategies, which typically demand a laser focus on the finish line of closing, no longer apply. All you can do these days is be realistic about your current and near-future financial situation, carefully study the regulations around shelter-in-place orders for your state or county, and speak candidly with all other parties as new variables come into play.
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