Buying a home is one of the biggest financial decisions that you will make. With that in mind, it’s important to understand the financial aspects of the home buying process so you know what to expect before taking the plunge.
In buying a home, it’s best to know the current housing market and local real estate conditions. And this year, the market is highly competitive in most areas of the United States, including in Chester County, PA. The demand for residential real estate, low mortgage rates, and low housing inventory has made the nation’s real estate market hotter than ever.
If you’re planning on buying a house in 2021, here’s what to expect:
A mortgage is the primary way for buyers to finance their home purchase. Shopping for a mortgage requires plenty of research and understanding of each option.
There are a variety of mortgage types to choose from, such as:
- Conventional mortgages
- Fixed-rate mortgages
- Adjustable rate mortgages
- FHA Loans
- USDA Loans
- Jumbo Loans
In 2021, mortgage rates reached a record low. According to the Freddie Mac Primary Mortgage Market Survey, the average 30-year fixed rate is at 2.87% while the 15-year fixed rate is at 2.17% as of August 2021.
With the low mortgage rates, you get a lower monthly mortgage payment, less interest, and a bigger home buying budget. Low mortgage rates have its disadvantages as well. Since more people are tempted to buy real estate because of the low mortgage rates, you’ll also have more competition for homes on the market.
It’s no secret that homes have been selling more quickly now than ever. Along with the low interest rates, the COVID-19 pandemic has helped increase the demand for homes as more people relocate to more spacious homes and communities.
Home prices continue to climb in 2021 and experts predict a steady increase in the coming years. According to a report in CNBC, the average price of a home in the United States is around $287,148, an increase of 13.2%. This can be attributed to the huge demand for homes, low mortgage rates, and low housing inventory.
In West Chester, PA, the average price of a home for sale as of August, 2021 is around $498,746. Zillow reports a 13.7% increase in housing price from the previous year.
A down payment is typically required in buying a home except in certain types of mortgage, such an FHA or VA loan. The down payment ranges from as low as 3% to around 20% of the purchase price, depending on the type of loan you acquire. If you pay less than 20%, you will likely be required by the lender to get mortgage insurance, which you need to maintain until you’ve achieved 20% equity on the home.
Your credit score is one of the main tools that lenders use in reviewing your mortgage application. Also known as a FICO Score, this three-digit number represents your overall financial soundness and takes account of your past payments, debt, portfolio of credit accounts, and how long you have held credit accounts.
According to Equifax, an acceptable credit score ranges from 580 to 669. A credit score between 670 to 799 is considered as very good, and a score of 800 and above is exceptional.
Since the 2021 housing market is a competitive one, having a good credit score is crucial to your home purchase. With a good credit score, lenders have more confidence in your ability to handle your mortgage, which may qualify you for more favorable interest rates.
Aside from the closing costs, down payment, and home maintenance, property taxes are another home buying expense that you need to consider. This real estate tax, which is calculated by the local government, is paid every year upon homeownership.
Property taxes vary from state to state. In Pennsylvania’s Chester County, the tax rate is at 4.551 Mills. This millage rate represents the rate for calculating local property taxes.
While homeowners insurance isn’t required by law, your mortgage lender may need it with your application. Homeowners insurance ensures that your lender’s investment is protected. A policy typically covers the property itself, your belongings, and other legal bills. Like any other homeownership expense, homeowners insurance is different per state. According to NerdWallet, the average cost for homeowners insurance is $1,585 per year.
Get the best advice for buying a home at RE/MAX Direct. Our award-winning team of real estate professionals will tell you everything you need to know about the buying process, from how to shop for a mortgage to top home buying tips in Chester County, CA. Call the team today at 610.430.8100 or send us an email at remaxdirectwc(at)gmail(dotted)com.