Money Lessons from the Pandemic – Homeownership
The COVID-19 crisis has brought widespread change to the financial landscape. What lessons are we learning from these changes, and how are we applying them to our lives?
Jennifer Zorn, Director of Business Performance for Home Lending at KeyBank, shares three money lessons that homeowners – and prospective homebuyers – are learning, as well as actions they are taking with this knowledge.
This article is one in a series, “Money Lessons from the Pandemic,” focusing on learnings people are taking away in three financial areas: homeownership, managing debt, and saving and spending.
Money Lesson 1: Make It a Priority to Hold onto Your Home
Many homeowners are placing a premium on making their mortgage loan payments so they can stay in their house, according to Zorn.
“That’s a trend we’ve seen,” she said. “People are not abandoning their homes. They don’t want to lose equity. It’s not like in the 2008 recession, when people found out their homes were worth less than they owed on them, and many abandoned their properties. That’s not happening at all.”
Applying the lesson:
- Talk with your bank. Homeowners facing difficulties making mortgage payments are working with their banks to seek accommodations. “They are proactive in consulting with their lenders because they want to stay in their house,” Zorn said.
- Understand the risks of loan forbearance. People needing help on home loans can take advantage of a CARES Act provision allowing homeowners to delay payments on federally backed mortgage loans. But they should do so with eyes open. “Being in forbearance could have an impact on your ability to secure credit,” Zorn said. “It doesn’t impact your credit score, per se, but your credit record could be flagged to indicate that you have a loan in forbearance. Some lenders may take that as a red flag to dig deeper into your financials before a loan request would be approved.”
“People who are ready and willing to take advantage of the low rates are absolutely filling the pipeline for requests of mortgages – both refinances and purchases – now that the markets have opened back up.” – Jennifer Zorn, KeyBank
Money Lesson 2: Expect Low Inventory if Entering or Moving Within the Home Market
The COVID-19 shutdown greatly disrupted the traditional prime season for home selling and buying – March, April and May. Real estate activity slowed, as buyers were reluctant to tour listed homes and sellers were concerned about having visitors walk through. Even securing a loan, Zorn pointed out, was difficult, as appraisers couldn’t enter homes to determine their value. Other sellers delayed listing altogether, and of them, many felt they missed the selling window and so have decided to wait until 2021 to list their homes.
A result of this disruption? Limited numbers of houses for sale. And, now, high competition for available properties.
“Real estate activity has picked up tremendously,” Zorn said. “In late May, early June, the purchase market came flooding in. We’re surprised by how fast purchase volumes have bounced back. Demand is definitely there. Low inventory is the challenge for these purchasers. If you are a first-time buyer, or someone who is looking to size up or size down, you don’t have a lot to pick from.”
Applying the lesson:
- Be prepared. Buyers are working with their bankers to ensure they can move fast and present the most attractive offer when buying opportunities arise.
Money Lesson 3: Take Advantage of Historically Low Interest Rates
“Interest rates are the lowest ever available on mortgages,” Zorn said. “Your mortgage is the longest long-term debt you’re going to have. The lower you can get that rate, the better. People know that now is the time to do it – whether they are looking to refinance or purchase – and they won’t get a better deal.”
Applying the lesson:
- Fill out the loan application. “People who are ready and willing to take advantage of the low rates are absolutely filling the pipeline for requests of mortgages – both refinances and purchases – now that the markets have opened back up,” Zorn said. “Our pipelines at Key are at record highs.”
- Recognize the risk. Other people are more concerned about the risks: What if they lose their job or health because of the pandemic? How can they take on the additional financial responsibility of a home purchase and mortgage loan? “How risk averse you are is a big factor in the decisions you’re making right now.”
- Time your move. Industry-wide in May, mortgage loan applications for refinances outpaced purchases 4 to 1. Now, according to Zorn, it’s more like 2 to 1, as the number of purchasers increases. This is driven in part by buyers who are tied to the start of the school year. “If you’re not trying to move by fall,” she said, “you may be better off waiting until October or November, when there’s less competition.”
Recommendations from the Expert
Jennifer Zorn offered these takeaways on homeownership in the time of COVID-19.
- If you own a home today, look closely at your interest rate.
“If you are employed and have consistent income and strong credit, you should consider refinancing,” she said. “Be aware of your current rate. Talk to a loan officer and see if you’ll save money from refinancing. That’s the No. 1 recommendation.”
- Understand how refinancing can save money and build equity faster, whether you’re planning to stay in your home or sell.
Reducing percentage points on a loan rate can bring significant savings over the life of a mortgage, she said. So can a shortened term: “Some people choose to rewrite a 30-year term and get their payments down. Other people choose to pay a little bit more and shorten the term to 15 years and get it paid off sooner. Even if you’re not going to stay in your home, you build equity faster. If you do plan on selling in 10 years, you’ll have more equity in your house to get out when you sell it. It’s a very, very good investment.”
- Be aware that the recession has caused all financial institutions to tighten some credit standards.
“This is specific to the recession, so it could impact you,” Zorn said. “For example, if you’re self-employed, it may be more difficult to prove your income.”
- Sit down with a mortgage loan officer for advice on your options.
“Find a loan officer that you can trust, someone who listens to you, understands your circumstances and can really help you figure out if it’s the right time to do something – and if so, what’s the right option,” she said. “And if not, let’s get you on a path to where you need to be with homeownership. It might be improving your credit score, or it might be trying to save for a down payment.”