As the world recovers from the impact of COVID-19, many potential homeowners are wondering: is this a good time to buy a home, or should I wait? The short answer is yes, now is a good time for Americans to pursue homeownership. However, deciding whether it's a good time for you to buy a home may require feedback from a financial expert, such as the Lendzi team.
Regardless of whether you’re ready to buy now or plan to hold off for a bit, we’ve got details about the ins and outs of homeownership. Here, we’ll explain why you’re in a buyer-friendly market and educate you on the different lending options available.
What's the Housing Market Like Now?
As of April 2021, buyers have a considerable chance of finding a home and securing a low-interest mortgage. In fact, the average rate for a 30-year fixed-rate mortgage is even lower now than it was 50 years ago!
Buyers have more funds available now for a down payment than usual, particularly if they’ve held on to savings from stimulus checks or tax refunds. Down payment rules are complex, though, so don’t assume you can just pump your economic impact payments into a home loan. Communicate your plans with a trusted financial expert before you make any big moves.
Beware of Bidding Wars
This is an ideal time for many house hunters to settle down but watch out for bidding wars. In some areas, the demand for a home exceeds the number of homes available. When this happens, buyers often bid significantly above the home’s listed price or current value. You may end up paying more than expected for your new home in this situation, even with today’s low mortgage rates.
If housing is scarce in your community, consider searching for a home in a nearby area or holding off on the buying process for a moment. You may find that waiting helps eliminate some of the competition. As an added benefit, postponing your house hunting gives you extra time for credit repair or boosting your savings account.
How Work-From-Home Jobs Potentially Impacted Market Trends
During the pandemic, many workers began tackling their duties virtually rather than at a brick-and-mortar office. Living spaces became more cramped with family members’ home around-the-clock, and some workers decided they needed bigger homes. Combine the rise in remote gigs with the number of kids participating in online learning programs, and it’s easy to see how the demand for housing has increased for many families.
Working from home also freed up time in a once busy schedule for some employees. As a result, they could tackle home renovations that previously kept them from listing their homes for sale. Without a daily commute, some workers have also been able to free up time for packing and moving, which is why some buyers went house hunting before in-office duties resumed.
Personal Mortgages vs. Commercial Mortgages
There are several mortgage options for anyone buying a residential home or business. Learn the difference between personal mortgages and commercial mortgages so you can determine which one is appropriate for your situation.
Personal Mortgages
Personal mortgages, also called residential mortgages, are geared toward homeowners who are buying a home for themselves or a loved one. These loans are given to individuals, not entities. You should consider a personal mortgage if you or another person plans to live in the home you are buying. This is true even if you work from home or conduct other business activities from your residence.
Things get a bit trickier if you are a landlord who plans to lease or rent your home, but not right away. A personal mortgage is appropriate in the meantime, but your mortgage lender may make some changes once you accept tenants. You may need a commercial mortgage if you plan to rent out your home from day one, but this requirement can vary by state.
Types of Personal Mortgages
Residential buyers have access to several mortgage options, including:
- Fixed-rate mortgages, also known as conventional home loans
- Interest-only mortgages
- Adjustable-rate mortgages
- VA loans
- FHA loans
- USDA loans
This is not a full list of lending options available for personal mortgages. You may also consider pursuing less-common types of home loans, such as a balloon loan or jumbo loan.
The type of personal mortgage you choose depends on several factors, such as:
- Your income
- The location of your potential home
- Eligibility for special funding options, such as a military background
- Your credit score and debt-to-income ratio
- The price of your home
- How long you need to pay off your home loan
Selecting the right mortgage depends on these factors, plus many others. Lendzi’s team of financial experts can explain common factors that lenders consider so you can determine which mortgage is right for you.Â
Commercial Mortgages
Commercial mortgages are geared toward entities, not individuals. When you apply for a commercial mortgage, you are typically applying on behalf of a business. However, the buying party doesn’t have to be a large business. Sole proprietors with registered Employer Identification Numbers (EINs) may also consider commercial mortgages for their business needs.
Commercial property is used exclusively for business purposes. You must have an income-generating business or plan of action before securing a commercial loan for your company.
Types of Commercial Mortgages
As with traditional mortgages for residential properties, there are numerous options available for commercial real estate loans. As a business owner, you may choose between some of the following options:
- SBA loans, such as the SBA 7(a) program and the SBA 504 loan
- USDA Business and Industry loans
- Conduit loans
- Takeout loans
- Permanent loans
- Bridge loans
- Commercial construction loans
The type of loan you choose depends on your company’s niche. For example, a commercial construction loan may work well for a company that owns apartment complexes, while an SBA loan is better for a salon owner.
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What Are Some Key Differences Between Personal Mortgages and Commercial Real Estate Loans?
Mortgages have many similarities, but there are a few key differences you may notice when comparing personal mortgages vs. commercial mortgages. For starters, personal mortgages often have longer repayment periods. You can spend up to 30 years paying for your primary residence, while business owners often repay commercial loans in under 20 years.
Also, in some states, you can eventually convert a residence funded by a personal mortgage into a business. However, you can’t turn a business into a personal home if a commercial loan funded it.
Interest rates are often higher for commercial loans than residential loans. You may also have more expenses during the loan process, such as origination fees and business verification expenses.
Paying for Your Home With a Personal Loan
You can buy a home with a personal loan, but it isn’t ideal for every situation. In fact, some mortgage lenders refuse to accept applicants who want to buy a home with a personal loan. Interest rates are often higher for personal loans than mortgages, which can hurt you over time. Also, personal loans aren’t always backed by government agencies the way some mortgages are, such as Sallie Mae and VA loans.
However, we have some good news. A personal loan may work well for your situation if you’re planning to buy a mobile home or other small residence. It’s often hard to secure traditional funding for mobile homes and some lenders don’t offer loans for them.
If your lender rejects your request to buy a home with a personal loan, you might be able to put the funds toward a down payment. Check with a financial specialist to help you determine the legal aspects and benefits of using a personal loan for homeownership.
Is It the Right Time for You to Buy a Home?
Rates are great for buyers right now, but that doesn’t mean you should jump into a home loan yet. Before you start RSVPing to viewings in your area, ask yourself the following questions:
- Does my credit need some TLC before I can get a mortgage?
- How’s my debt-to-income ratio looking at the moment, and how will buying a home impact it?
- Can I comfortably afford a new home?
- Is my job and/or steady income secure?
- Do I have enough funds for a down payment, closing costs and other housing-related expenses?
- Can I afford to transport my personal possessions to a new home?
Don’t panic if you want to buy a home ASAP but aren’t ready. Lendzi is here to help you prepare, whether you need tips on consolidating debt or managing your business expenses. We’ll work with you to determine the best course of action for your budget and lifestyle and then revisit the idea of homeownership when you’re ready.
Finance Your New Home With Help From Lendzi
The housing market is constantly fluctuating, so it can be difficult to monitor trends on your own. If you jump in at the wrong time, you may overpay or get locked into a high-APR mortgage. Protect yourself from rate spikes and other common concerns by speaking with a financial expert from Lendzi before you buy a home.
Lendzi’s knowledgeable team has extensive training with mortgage solutions and are happy to help, whether you’re a business owner who needs a commercial loan or a first-time home buyer curious about the importance of financial statements to lenders. We can answer any real estate loan questions you may have, such as what you need to sell or how to refinance your home. Our team can’t wait to connect with you!
About the Author
Kate Samano
Kate Samano is a copywriter and Head of Content at Lendzi. She believes in helping small businesses grow by providing access to viable financial advice.