Planning for a Home Purchase in 2021
You may have decided to postpone your home purchase until 2021 because of the Pandemic.
The landscape for buying a home this year is much better. With months of experience under our belts and changes to how the housing market does business, this year should be much smoother.
Home appraisals, home inspections, lender mortgage applications, seller home showings and buyer offers have all now had a chance to make adjustments to ease the minds and increase the safety of all parties involved in a real estate transaction.
A home purchase can be different for a 1st time buyer compared to a repeat home buyer. The steps and home buying process in 2021 are not the same as even 2 years ago. This major purchase decision that you are considering making, can be affected by many factors: Home inventory availability, mortgage financing options, qualifying, personal finance budget and your realtor’s effectiveness.
- Home buyers that have been through the process still could use a refresher since the process and market is ever changing. First time buyers should be aware of the various mortgage programs and down payment assistance options. It’s always valuable to be up to date on current market conditions and mortgage lending options.
In this home purchase article we will cover the key steps in buying a home in 2021. And we have included some links to calculators that will help you along the way.
- Getting started: Evaluate your reasons for wanting to purchase a home
Is it for tax break reasons, wanting to take advantage of low interest rates, tired of renting and not building equity, would like to benefit from home value appreciation, have a goal to own a home free and clear someday or do you just want to invest your money in real estate?
Whatever your reasons are, home ownership is part of the American dream. There are many benefits and some risks. Working with a good lender and real estate agent that have your best interest in mind, will help you to make the right educated decision.
If you are buying your first home or a repeat buyer, preparing for the requirements is the first step. Maybe you are considering purchasing a second home or a vacation home. Or perhaps being a landlord, and buying a rental unit.
Preparation is an important first step. Knowing what you can afford for the monthly home loan payment is a good starting point. And evaluating how much liquid cash you have to work with for a down payment and closing costs.
Financial Calculators from
Mortgage and Home Expenses:
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Monthly house payment: $1,398.56
Down Payment and Closing Costs:
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Total closing costs: $4,898
Rent, Taxes and Inflation:
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Monthly rent payment: $750
Home Equity vs. Investment
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Monthly Payment Breakdown
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10 Year Projected Monthly Payments
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Price of home
Purchase price of the home you wish to buy.
The current interest rate you expect to receive on your mortgage. Please note that the interest rate is different from the Annual Percentage Rate (APR), which includes other expenses such as mortgage insurance, and the origination fee and or point(s), which were paid when the mortgage was first originated. The APR is normally higher than the simple interest rate.
Term in years
The number of years over which you will repay this loan.
Monthly cost of Private Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year.
Calculated amount of the loan for this home purchase.
Monthly payment (PI)
Monthly principal and interest (PI) payment.
Property tax rate
Your property tax rate. 1% for a $100,000 home equals $1,000 per year in property taxes.
Home insurance rate
Your homeowner's insurance rate. 0.5% for a $100,000 home equals $500 per year for homeowner's insurance.
Assoc. & maintenance fees
Any association fees you are required to pay per month with the ownership of this home. Also include any other maintenance costs you expect to incur with the ownership of this home that you are not paying while you continue to rent.
Cash on hand
Cash you have for the down payment and closing costs.
Loan origination rate
The percentage the lending institution charges for its origination fee. 1% for a $100,000 home equals $1,000.
The total number of points paid to reduce the interest rate of your mortgage. Each point costs 1% of your mortgage balance.
Other closing costs
Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other miscellaneous fees paid.
Total for down payment
Total funds remaining for down payment.
Monthly rent payment
Amount you currently pay for rent per month.
After-tax investment return
The rate of return, after taxes, you could receive if you invested your closing costs and down payment instead of purchasing a home.
The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2018, had an annual compounded rate of return of 12.1%, including reinvestment of dividends. From January 1, 1970 to December 31st 2018, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.2% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Income tax rate
Your current marginal income tax rate. Use the ‘Filing Status and Federal Income Tax Rates’ table to assist you in estimating your federal tax rate.
|Tax Rate||Married Filing Jointly or Qualified Widow(er)||Single||Head of Household||Married Filing Separately|
|*Caution: Do not use these tax rate schedules to figure 2018 taxes. Use only to figure 2019 estimates. Source: Rev. Proc. 2018-57|
|10%||$0 - $19,400||$0 - $9,700||$0 - $13,850||$0 - $9,700|
|12%||$19,400 - $78,950||$9,700 - $39,475||$13,850 - $52,850||$9,700 - $39,475|
|22%||$78,950 - $168,400||$39,475 - $84,200||$52,850 - $84,200||$39,475 - $84,200|
|24%||$168,400 - $321,450||$84,200 - $160,725||$84,200 - $160,700||$84,200 - $160,725|
|32%||$321,450 - $408,200||$160,725 - $204,100||$160,700 - $204,100||$160,725 - $204,100|
|35%||$408,200 - $612,350||$204,100 - $510,300||$204,100 - $510,300||$204,100 - $306,175|
|37%||Over $612,350||Over $510,300||Over $510,300||Over $306,175|
Expected inflation rate
This is what you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2018 the CPI has a long-term average of 2.9% annually. Over the last 40 years highest CPI recorded was 13.5% in 1980. For 2018, the last full year available, the CPI was 2.2% annually as reported by the Minneapolis Federal Reserve. Inflation rate is used to adjust amounts subject to annual increases. These amounts include rent, insurance and tax payments.
Home value appreciation
Amount you expect your home value to appreciate annually.
Future sales commission
The percent of your home's selling price you expect to pay to a broker or real estate agent when you sell your home.
Total of principal, interest, taxes and insurance (PITI) and maintenance paid per month for your home. Insurance includes Principal Mortgage Insurance (PMI) and homeowner's insurance.
Initial tax savings
The value of the tax deduction you receive on your mortgage's interest and home's property taxes. For example, if you have $900 in interest and $100 property taxes per month, the value of the tax deduction would be $250 (at a tax rate of 25%). Please consult with a tax professional regarding mortgage interest deductions and your specific situation.
Initial principal payment
Total of principal paid per month on your mortgage.
Net house payment
Your initial house payment minus the value of the tax deduction and principal payment (equity).
Net sales price
Net selling price of your home after subtracting any sales commissions.
If you are buying your first home or a repeat buyer, preparing for the requirements is the first step. Maybe you are considering purchasing a second home or a vacation home. Or perhaps being a landlord, and buying a rental unit. Read our Complete Guide on how to purchase a property!
Compare Home Purchase Mortgage Rates
Any year is a good time to buy a house. There is no better time than 2020 with mortgage rates still low.
Use our Comparison Table to find the best Purchase Rates.
Complete our Home Purchase Questionnaire
Complete this questionnaire in a few steps and get personalized rates from up to 4 lenders from your area, for free!
Important FAQ’s regarding purchasing a home
Start by getting a pre-approval from a mortgage lender. You need to know the financing you are qualified for so you know the price range to look in. The first step is preparing your income, debts & assets documentation for a lender.
Down payments can be as low as 3 percent of the purchase price. Eligible veterans can go with a VA loan with zero down. FHA is 3.5 percent down. Conventional has 3 percent down programs but you need a very good credit score.
Yes because mortgage rates are still very low. Next year the rates may be higher which can have a big impact on the price range you will be able to qualify for. The real estate market is strong for both home buyers and sellers. The economy is booming so if you are serious about owning a home, there is no better time to buy than 2020.
FHA is usually the best first-time buyer mortgage program. You only need 3.5 percent as a down payment and the credit score requirements are very flexible, as low as 620 FICO credit score. There are other first-time home buyer programs but these can differ from lender to lender. Ask this question when you are shopping for a lender to see how they may offer special programs that other lenders do not.
No, pre-qualifying is only an opinion and will not satisfy realtors or sellers.
Yes because banks, mortgage brokers and mortgage bankers tend to have their niche mortgage products they are experienced in and specialize in. Once you know the program that is best for you, choose a lender that understands that home loan program fully. Ask the loan officer what their experience is in that program. Many mistakes are made by choosing a lender that simply is not good with a specific loan type.
When you zero in on an area or sub-division, property taxes are usually consistent.
Figure out the worst case scenario for your budget and use that number.
The best way to really know is by getting a pre-approval from a home loan lender. Besides the financial side, you should be ready to take care of a home and have savings left over after you buy a home. The emotional aspect of homeownership is very rewarding and tends to elevate careers and pride. If you are renting then you are not building equity like you would if you owned a home. Home appreciation in in itself can be very lucrative.
Yes it can have an impact. Many factors can affect underwriting guidelines. It is best to share with your lender the home you are interesting in before proceeding with an offer. Good realtors usually know if a certain home has potential lending issues.
This depends on the mortgage type you need or want. The lowest acceptable FICO score is usually for FHA loans which is as low as a 580 score. Of course the higher your credit score is the better options you will qualify for.
Once you have an executed signed purchase agreement (PA) you can lock-in a mortgage rate. Be sure to select a lock-in period that will be long enough to close on your new home.
Not as much as you might think. For example, on a $200,000 sales price with 5% down ($190,000 loan amount), principal and interest (P&I) for a 5% interest rate is $1019.96 per month. For a $200,000 sales price with 10% down ($180,000 loan amount), principal and interest (P&I) for a 5% interest rate is $966.28 per month. That’s only a difference of $53.68 per month and would free up $10,000 for other purposes.
Anywhere from 4 to 6 weeks is the norm. If lenders are extremely busy due to market conditions it may take a bit longer. The more you help and participate with clearing underwriter conditions, the faster you can close.
- If you have bruised credit or no credit at all, start with a secured credit card or co-signed loan. This will help you establish a better credit score. Just make sure you make all payments on time.
Yes it is always a good time to buy a foreclosed home. If you can be patient the type of deal you can get could be a large savings. The home market is not as vast as it was a few years ago in finding foreclosure homes to purchase. They are still out there and an online search can help find them. Your realtor will also know what might be available in areas you are interested in.
The amount of time it takes to purchase and close on a foreclosed property can take anywhere from 3 months to a year. The process is pretty much out of your hands as the lender who owns the property has their own policies & procedures that need to be satisfied. Patience is the key but can pay off handsomely if you have the time to wait. The bank will want to recoup as much of their investment as possible.
These are not currently available to purchase with no money down. There are programs like FHA 203b that can get you a foreclosed home with no out of pocket investment. These loans provide financing to repair and renovate a home as well as the end mortgage. You need a lender and loan officer that are well versed in this program.