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What You Need to Know About Buying During a Recession

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By: Suzie Wilson

What You Need to Know About Buying During a Recession

Most experts think the economy is in the early stages of recession. Fortunately, this does not mean that you have to put your home buying or selling plans on hiatus. Unlike our last economic downturn, 2020 will most likely not have the same impact on the real estate market. But it always pays to know what you’re getting yourself into, particularly if you are a first-time buyer or investment buyer hoping to keep your head above water.

Before You Buy

Before you even think about scouring the MLS, it’s a good idea to identify and reach out to a real estate agent that knows your area. As Forbes explains, having the right person on your side is the best way to navigate the complex world of real estate.

Something else you want to get a grip on is your finances. Although you know money is involved, since this is your first property purchase, explore common questions relating to what goes into obtaining a loan. Something that you’ll need to know more about is your credit score; any mistakes on your report might hurt you. And as Legal Nature says, you’ll also want to have all of your financial documents, such as pay stubs and bank statements, in a central location.

Many new buyers opt for an FHA loan, which is a little easier to qualify for, and these types of loans allow you to put down less money. If you have very little credit history, this is likely your best bet. An FHA home loan is more open to those with a short credit history and who may only have 3.5% of the purchase price available as a down payment. A PennyMac FHA form will help you get started off on the right foot.

How the Recession Affects Real Estate

There is a lot of confusion as to how recession conditions actually affect the real estate market. It’s really not that difficult to understand, however, when you look at what a recession does. During a typical economic downturn, there is higher unemployment. New jobs may come with lower wages, and people are more reluctant to sell their properties. On one hand, this can drive prices lower as people simply can’t afford an overpriced piece of property. On the other, because there is less inventory, prices may stay the same or, depending on the market, increase.

How to Find the Right Property

Looking for a home or investment property during a session really isn’t that different than any other time. First, sit down and determine what you want and need. Next, figure out what you can actually afford and then reevaluate your original checklist. You are likely to find the best deal on a property that’s been sitting for 30 to 60 days or longer. Be prepared to make repairs and improvements, especially if you’re hoping for a bargain. You must factor this into your decision and not let yourself get blinded by a low listing price.

A special note for investors: determine if you want to be a landlord or operate your property as a vacation rental. Each of these is a viable way to earn an income, but there might be restrictions on how, exactly, you can use a home, farm, or condominium. For example, some neighborhoods have an HOA that doesn’t allow short-term guests. If you plan to rent your property long-term, you’ll also want to know what you can and cannot do as a landlord.

Whether to buy now or not is up to you. Weigh the pros and cons, and get to know the market. If everything is stable and you are confident in your finances, there is no reason not to move forward with buying your first home. However, if you have any reservations, it’s best to talk to your realtor and financial advisor to go through a few potential future scenarios. In either case, your goal is never to lose money but to enhance your quality of life through homeownership.

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Brian Burds

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