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Opinion: Here's what you need to know about homeownership in a pandemic

Michael Brown

Despite the coronavirus pandemic bringing unemployment and financial ruin to millions of Americans, the real estate market has never been hotter. 

We may be in an official recession, but record-low mortgage rates coupled with location flexibility due to work-from-home policies have spurred consumers to move out of big cities and become homeowners in the suburbs or countryside.

According to the National Association of Realtors, “existing-home sales grew for the fourth consecutive month in September to a seasonally-adjusted annual rate of 6.54 million — up 9.4% from the prior month and nearly 21% from one year ago.”

Fifty-five percent of new homeowners are now regretting the decision to take out a mortgage, Brown writes.

That organization also found the median existing-home price has increased 15% year-over-year to $311,800, and 71% of houses sold in September were on the market for less than a month.

My new study from LendEDU regarding mortgage trends during the pandemic found 72% of new homeowners cited the coronavirus pandemic as the reason they took out mortgages and became homeowners.

Yet that study also found 55% of new homeowners are now regretting the decision to take out a mortgage and buy a house during this unprecedented time, with 30% citing financial struggles as the source of their regret.

Amongst respondents from Michigan who participated in the LendEDU survey, 80% cited low mortgage interest rates during the pandemic as the reason they decided to become homeowners. 

However, a combined 60% of Michigan poll participants who took out a mortgage during the pandemic are now regretting the decision to do so, with one-third citing newfound financial struggles.

Only 20% of new homeowners from the Great Lakes State thought they made the right decision to buy a house during the coronavirus pandemic.

So, how do you know if taking out a mortgage and becoming a homeowner during the coronavirus pandemic is a trap or savvy financial move?

First off, you should feel absolutely secure in your job because that will ensure you have the financial means to handle monthly mortgage payments.

LendEDU’s study found 17% of homeowners have been struggling to make their monthly home loan payments after getting laid off due to the pandemic recession. That percentage jumped to 23% when just looking at respondents who became homeowners during the pandemic.

Other than being certain about your job during this uncertain time, you should also only take out a mortgage during the pandemic if your monthly mortgage payments are no more than 28% of your monthly household income.

This is a personal finance rule of thumb and ensures you can comfortably make monthly mortgage payments while still having money to handle life’s other obligations.

Third and finally, becoming a homeowner during the coronavirus pandemic should only be an option if you have enough money saved to make a 20% down payment on your mortgage. Not only should this secure you a lower interest rate, but it will also lower your monthly payments and allow you to avoid taking out private mortgage insurance.

With mortgage rates unbelievably low, it can be enticing to jump on homeownership during the pandemic but hastily rushing into the mortgage process can spell financial ruin for years to come.

Before taking the plunge, ensure you have the financials and job security to provide a safety net in the event the pandemic interferes with your plans more than it already has.

Michael Brown is director of communications at LendEDU, a personal finance marketplace based in Hoboken, New Jersey.