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Owning a home is a huge undertaking, but a potentially rewarding one. When you buy a place of your own, you get to build equity in an asset that can increase in value over time. You also gain the stability of not having a landlord who can opt to not renew your lease. And, you can call the shots. Want to adopt a dog? That's your choice. Want to knock down a wall? Go for it (with caution, of course).
If you're thinking that 2021 is the year for you to buy a home, you should know what the housing and mortgage market could have in store. Here are a few things to keep in mind.
1. You might pay a lot for a home
Home values across the country have skyrocketed in 2020, and once 2021 kicks off, they're apt to stay that way. In fact, as of late November, the average buyer took out a $375,000 mortgage to purchase a home, according to the Mortgage Bankers Association. That's the highest number on record since the group began its survey in 1990. As such, if you're hoping to buy in 2021, prepare to pay a premium, especially early on in the year, when prices and inventory will likely be comparable to what they are now. In fact, you should spend this time taking a close look at your budget and then establish an outer limit for what you can pay. That way, you won't be tempted to stretch yourself financially in the near term and regret it later.
2. You may not have a huge selection to choose from
Housing inventory has been extremely tight during the pandemic, and that's worked to sellers' advantage by fueling demand and driving home prices upward. It's too soon to know what inventory will look like in 2021, and much will depend on how the pandemic plays out. But at the very least, expect limited inventory at the start of the year -- and understand the drawbacks that go with it. In addition to inflated prices, you may get stuck buying a property in disrepair if you insist on becoming a homeowner in 2021. Or, you may have to compromise on the square footage of your home. Make a list of must-haves for your home and stick to it so you don't wind up settling for a place with a bunch of features you're unhappy with.
3. If your credit score is great, you might snag an amazingly low mortgage rate
Mortgage rates recently hit their 14th record low, so they'll likely hover at ultra-competitive levels for at least the first part of the year. In fact, while mortgage rates may climb as 2021 progresses, there's a strong chance they'll stay attractive throughout the year, especially as the U.S. economy attempts to stage a recovery. That gives you a great opportunity to snag some savings -- that is, if your credit score is excellent. If your score is poor, you may not be able to get a mortgage at all. And if it's mediocre, you may qualify for a home loan, but not at the astoundingly low rates you keep hearing about.
That said, there are steps you can take to boost your credit fairly quickly. First, start by paying every incoming bill on time, as that's the most important factor in calculating your score. Next, if you have credit card debt, aim to pay off a chunk of it. Doing so will bring down your credit usage and help your score improve. Finally, check your credit reports for errors. Fixing a mistake that works against you, like a delinquent debt that's not really yours, could be a huge help.
Is 2021 the right year for you to buy a home? If you're tired of renting, are financially stable, and have socked away adequate funds for a down payment, then it might be. But be aware of what the housing market looks like before you jump in, and do everything in your power to make yourself as strong a mortgage candidate as possible.