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Recession-Friendly House Hunting
for First-Time Buyers and Investors
The real estate market is showing a strong recovery following coronavirus-related shutdowns. Despite financially uncertain times and social distancing recommendations, people everywhere are still buying and selling homes. In fact, the current recession is an enticing opportunity for many buyers. Whether you’re thinking about buying your first home or looking to invest in real estate, the recession may be a great time to purchase property and lock in a low mortgage rate! Here are some things to keep in mind before making your big purchase.
Ensure You’re Financially Prepared
For many people, the recession could be a great time to buy a house. But is it the right time for you? If you’re not financially prepared for this major purchase, don’t rush your plans just so you can secure a low interest rate on a loan. Do some research to find out how much home you can afford so you can get a better idea of your options. Looking into home loans is a good place to start. According to PennyMac, a conventional mortgage can be a good low-cost loan option for both primary homes and investment properties. Plus, you can choose between a fixed rate and adjustable-rate mortgage and enjoy a range of down payment options.
Of course, financial preparedness will look a lot different depending on whether you're buying a home as a principal residence or investment property. It’s a good rule of thumb to keep your mortgage expenses under 28% of your gross income. If you’re buying an investment property, make sure you will be able to charge enough rent to come up with a positive cash flow.
Be Careful About Buying a Home ‘As-Is’
As you start looking for homes, you may notice quite a few selling “as-is.” These homes are more common during recessions as many owners can’t afford to make repairs before selling. Banks also list foreclosed homes “as-is”. While buying an “as-is” home may help you get a great deal on your dream property, it’s important to be cautious.
Make sure you know exactly what you’re getting into by purchasing a home that may need substantial work. For example, Redfin warns that “as-is” homes could have major defects like structural problems, pest infections, or mold issues. If you decide to go after an “as-is” home, get a home inspection before closing your sale and be prepared to cover any maintenance issues yourself. These homes may not be your best choice if you’re looking for a low-maintenance first home or a turnkey real estate investment.
Try to Be Flexible
When house-hunting during a recession, flexibility is key. Don’t limit yourself to your favorite neighborhoods. Whether you’re investing or buying your first residence, look into areas of town where you won’t get a lot of competition from other buyers. Working with a great real estate agent can help you discover up-and-coming neighborhoods where homes are more affordable and prices are projected to rise over time.
Consider Your Plans for the Property
It’s easy to get caught up in the excitement of buying your first home or investment property. But don’t forget to think about the future! What are your plans for the property? How long do you plan to live in the home? Will you be making renovations or upgrades? Do you intend to rent out the basement suite to help with your mortgage payments? Investors also have to consider their future plans. If you want to rent out your new property as a short-term vacation home, you may need some extra money in your budget to make attractive renovations or interior design upgrades.
When personal finances are in the right place, recessions can be exciting opportunities for prospective home buyers. This may be your only chance to score a historically-low interest rate on your dream home. As long as you’ve thought ahead, calculated your home affordability, and researched your loan options, this could be a great time to buy your first home or investment property!
Article BySuzie Wilson
House Hunting Tips, First Time Home Buyers, Recession Home Buyer, Interior Design, Investors