Buying a Home in 2020? 12 things you should consider before diving in!
For most buyers, there are many questions that arise when buying a home, and timing is arguably one of the greatest concerns. With the ever-changing economic market, it is important to know when buying conditions are favorable, as purchasing a home in a strong market could save you thousands (or sometimes even hundreds of thousands) of dollars in the long-term.
1. Is 2020 a good year to buy a home?
Charlotte homes have been consistently appreciating over the past several years. There are a variety of factors influencing these metrics that I will delve into a bit more below, but I advise buying in 2019 if possible. Charlotte’s strong market and the powerful economy will continue to drive housing prices up, and buyers will most-likely see higher housing prices in 2020 vs. 2019.
With that being said, market conditions are indicating that 2020 will present a favorable market to buy a home, even with prices being higher than they are currently. Charlotte’s job market is strong, population growth is ever on the rise, and Charlotte’s overall popularity continues to increase year over year. Charlotte’s economy is projecting to remain favorable, albeit more expensive as we head into 2020.
2. How will Charlotte’s population affect home prices in 2020?
Charlotte is one of the country’s fastest-growing areas and the largest city in North Carolina. The city proper is home to more than 800,000 people and, beyond the city itself, Charlotte’s metropolitan area is home to more than two a half million people. It is an area of the United States that millennials are targeting. As a result of Charlotte’s substantial population, the housing market is proving to be particularly attractive to investors seeking to buy and hold or renovate and flip.
Just to put the population data into perspective, the U.S. Census Bureau reported that Charlotte gained 15,551 new residents during the 12-month period from 2016 to 2017 – which is more than most cities across the U.S. In fact, Charlotte ranked as the 7th fastest growing city in the United States in 2018. Although we are now a few years ahead of the substantial 2016-2017 population increase, Charlotte’s population has continued to rise year over year. As a result, the city is still attempting to keep up with housing demands for the ever-increasing number of people who are moving to Charlotte.
As population increases, demand for housing rises with it. Prices will consequently increase along with demand. It is estimated that by March 2020, housing prices will have risen 6.1 percent in Charlotte. If you are in a position to buy now, I advise making your purchase plans sooner rather than later to avoid a rapid price increase in 2020. (Ryan, this 6.1% rate is pulled from a Zillow survey, so I didn’t want to reference that here but just wanted to let you know:
3. Are home prices going to drop in 2020?
Charlotte has not seen a decrease in housing prices since 2012 (as a delayed result of the 2009 recession). Therefore, prices have steadily risen year over year. This is widely due to the fact that Charlotte’s housing inventory has not grown along with the population growth. Therefore, Charlotte is not yet considered to have a “balanced” housing market, and demand outweighs supply.
An additional factor to bear in mind when considering the ever-rising demand for housing in Charlotte is the city’s extremely strong job market, as Charlotte’s powerful economy has a strong bearing on the city’s housing prices. According to the Labor Department, by the end of 2018, the unemployment rate in the Charlotte area was down 3.4 percent. Additionally, Charlotte is one of the largest banking and financial centers, second only to New York City, and is home to seven Fortune-500 companies including Bank of America, Lowe’s, Honeywell, and Microsoft’s East Coast headquarters.
4. What credit score is needed to buy a house in 2020?
Credit score requirements will depend on the loan type you are applying for. I have outlined a few loan types below:
A. Conventional Loans
Conventional loans come with the strictest lending standards and require a credit score of at least 620. The down payment can be as low as 5 percent, but 10 to 20 percent is far more typical. If you have a down payment that is less than 20 percent, you will be required to pay for mortgage insurance, which is the lenders way of protecting itself in the off chance the buyer defaults on their mortgage. However, the mortgage insurance can be cancelled when the loan-to-value ratio reaches 80 percent. It is also important to note that conventional loans can be used when purchasing an investment property, primary residence, or vacation home. FHA loans, which we’ll delve into below, can only be used when purchasing owner-occupied properties.
B. FHA Loans (Federal Housing Administration Loans)
FHA loans are backed by the Federal Housing Administration and require a lower credit score than conventional loans at just 580. Lower down payments are permitted and can be as low as 3.5 percent. The mortgage insurance requirements are stricter, unlike conventional loans. Upfront and monthly mortgage insurance payments are required, typically for the duration of the mortgage – even after the loan-to-value ratio reaches a certain percentage. As mentioned in the section detailing conventional loans above, FHA loans can only be used when purchasing owner-occupied properties. An FHA loan can also be used when purchasing a multi-family unit, but the owner must live in at least one of the units.
5. What else should I know when applying for a mortgage in 2020?
As you prepare to purchase a home in the coming year, it is important to note that your credit score is not the only factor involved in obtaining mortgage approval. In addition to your credit score, lenders will also review your employment history, the down payment amount you can afford, and how much debt you have.
6. Why is my credit score a factor when purchasing a home?
Your credit score is the lenders way of knowing how likely you are to default on your mortgage. If a borrower has traditionally failed to make credit card payments and has a high amount of debt, they are considered a riskier borrower and may be more likely to default on their mortgage payments. Lenders need to understand a borrower’s financial history ahead of time to know how to protect themselves from losing money should a borrower fail to make payments. If the borrower’s credit score is low, the interest rate on their loan will be higher. Unfortunately, applicants with low credit scores will likely end up paying thousands of dollars in interest in addition to the principal loan amount.
7. How much can I afford when buying a home in 2020?
Along with understanding the requirements involved when obtaining a mortgage, it is also important to know how much house you can afford as a whole. As a general rule of thumb, I recommend only considering homes that cost more than three times your income. Therefore, if you (or you and your spouse) make $100,000 per year, I advise looking for homes that are $300,000 or less. However, as we saw above, there are many factors that come into play when qualifying for a mortgage beyond just income. Lenders will also consider the length of time you have worked for your employer, how frequently you have changed jobs over the years, how much debt you have, and much more. Rather than just guessing how much you think you can afford, I strongly advise speaking with a mortgage lender. They will provide a clear-cut answer as to exactly how much you can afford, which will save you time spent looking at homes out of your price range down the line.
8. What is the best month to buy a house?
According to NerdWallet, national housing prices typically drop the lowest during January and February – oftentimes dropping by as much as 8.45 percent lower than prices in June, July, and August. Even in Charlotte’s warm climate, winter still presents difficult weather at times and many buyers prefer not to risk home shopping and moving during the colder season. Although many sellers prefer to wait until the Spring to list their homes, those who do keep their homes on the market in the winter may be more inclined to negotiate a lower sale price in the buyer’s favor. (Source:
9. What should I set aside for a down payment when buying a home in Charlotte?
Although the standard down payment has traditionally been 20 percent, it no longer is always necessary to put 20 percent down when buying a home. We have had folks buy a home in Charlotte with 0% down! With that being said, Charlotte does have an extremely competitive buyer’s market and, depending on the home and area in which you want to buy, putting 20 percent down may be necessary. If you are in a bidding war against another buyer and can only put down 10 percent but the competing buyer can put down 20 percent, they will most-likely outbid you. Typically, whoever can put the most cash on the table will be successful in closing on the home. However, if you are purchasing during the off-season (in January or February), you might not be competing against as many buyers and will have more flexibility with the down payment.
10. How much time should I allot when buying a home?
The most time-consuming aspect of the buying process is the ‘home shopping’ period, which typically takes about 30 to 60 days. After you decide to put in an offer on a home, it can take anywhere from 14 to 60 days from the time your offer is accepted until you are actually handed the keys at the closing table. There are some buyers who find exactly what they want early-on and have a quick closing period – sometimes completing everything in less than a month. However, I recommend allocating at least 4 – 6 months total to be safe when factoring in how much time is necessary to buy a home.
With companies such as Rocket Mortgage, which have the ability to approve a buyer for a mortgage in as little as 10 minutes, application-to-closing time periods are rapidly shrinking and buyers no longer need to wait several weeks before they are approved for a loan.
11. Do I need to hire a real estate agent?
As we head into 2020, it will be especially pertinent to hire a real estate agent. As aforementioned, inventory has not kept up with the demand for housing and population influx. Real estate agents have a careful pulse on the market and are always up-to-date on what is coming to market, sometimes even several months prior to a home being publicly available for sale. They are also very aware of new buildings being built and the state of new development properties and will be a vital resource to you as you make the major decision to buy a home. Additionally, your real estate agent will be able to guide you through the lengthy and complicated process of knowing how much to offer when submitting an offer to buy a home and how to navigate the somewhat confusing process of obtaining a mortgage.
12. What are some other factors I should consider when planning to buy?
In addition to the home you plan to purchase, it is equally as important to carefully evaluate the area in which you want to buy. Charlotte is rapidly developing and the real estate market is constantly in flux, so it is important to consider what is being built around the home where you wish to buy. Will an apartment complex be built in the next few years that may block your beautiful city view? Will noisy construction be underway in your neighborhood for the next several years?
Speak with your real estate agent about zoning laws, future development plans, new neighboring homes being built in your area, and any other construction-related factors that may play a role in your home’s value. You may be drawn to the stunning city view or a lush, sprawling park in your dream neighborhood, but if those areas are projected to be rezoned in the next few years, the value of your home may diminish. It is imperative to understand these factors ahead of time so that there are no surprises down the line after purchasing the home. For folks in Charlotte the most popular neighborhoods she a nice increase in their home's value.
Although I do believe that 2020 will present a favorable market for buyers, I project that prices will be higher than they are currently in 2019. With so many folks moving to and wanting to live in Charlotte there's been a significant increase year after year in population size. This is very similar to what our sister company is experiencing in Raleigh.
Therefore, if you are in a position to buy now, I recommend beginning the process. However, I always tell my clients that it is never wise to rush a process as costly and important as purchasing a home, regardless of market conditions. It is far more important to wait until you are comfortable in your career, have steady income, have a strong credit score, and know exactly where you want to buy and what kind of home details are important to you. If you don’t anticipate buying a home for another year (or longer), I still strongly advise reaching out to a real estate agent to understand what you can do to prepare for the buying process ahead. It is never too early to reach out, as the better prepared you are, the easier the process will be.
Hi there! My name is Ryan Fitzgerald, and I am a REALTOR in Charlotte, NC. My goal is to help you learn more about real estate through our Charlotte Real Estate Blog! Hopefully, you enjoyed the above blog post and it found a way to provide help or value to you. When you're ready to buy or sell a home of your own let us know here. Please feel free to join the conversation by dropping us a comment below... We love comments!