How Will Getting a Mortgage Be Different in 2021?
Here's what you need to know if you're planning to apply for a home loan this year.
2020 was an unprecedented year for mortgages -- namely, because mortgage rates plunged to record lows for both new home purchases and refinances. But will those rates hold steady into 2021? Here's what you need to know about applying for a home loan and navigating this year's housing market.
Rates should hold steady
First, let's get the good news out of the way. There's a good chance mortgage rates for new home purchases as well as refinances will remain competitive this year, according to Kevin Parker, Vice President of Field Mortgage at Navy Federal Credit Union.
"Based on all the information and projections out there, we expect interest rates to stay low through 2021, making this a great time to buy a home or refinance an existing mortgage," he says.
Lenders may uphold stricter borrowing requirements
During the coronavirus pandemic, some lenders have gotten stricter about approving mortgage applications. The U.S. economy is still shaky and there's still a lot of uncertainty, so borrowers should expect lenders to impose similar standards in 2021. Therefore, if you plan to apply for a mortgage, make sure you're a viable candidate.
As Parker says, "We recommend starting by doing your homework. Understand your credit score and research lenders to see what interest rates are being offered for the mortgage that fits your goals."
Of course, your best bet when applying for a mortgage is to shop around. "Plenty of lenders will have enticing rates in 2021, so don’t talk with just one lender; speak with two or three before you get your credit pulled to make sure you’re getting the best loan," insists Parker.
"Some factors to watch out for include hidden origination fees or any private mortgage insurance requirements. It’s important to work with a lender you can trust -- one that understands your financial goals and will answer your questions openly and honestly to help you through the mortgage process during such an unusual time.”
Inventory will still be limited, at least initially
Before getting a mortgage, you'll need to find a home to buy. That may prove challenging given the limited supply of available properties right now. However, things may improve as 2021 goes on. For one thing, many sellers who held off on listing their homes in 2020 may be itching to put their properties on the market this spring, which is usually a popular time to list homes. Also, as coronavirus vaccines get rolled out, sellers may grow more comfortable with the idea of open houses and showings -- which are part of the normal home sale process.
If you're eager to buy in 2021, keep track of housing inventory in your target neighborhood and make sure to at least get pre-approved for a mortgage. That way, if a listing pops up that you're interested in, you'll be in a good position to jump on it.
All told, 2021 will probably be an interesting year to apply for a mortgage. While rates should remain low, mortgage lender requirements and low housing inventory could prove challenging to some buyers. The key is to stay on top of your target real estate market and work on making yourself the most attractive loan candidate possible.
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