What to Consider When Buying or Selling a Home in a Rising Mortgage Interest Rate Environment

If you are buying or selling a home when mortgage interest rates are rising, there are important considerations to keep in mind that impact affordability and other factors.

Tips to Keep in Mind

When mortgage rates are rising, purchasing a home becomes more expensive, and selling a home becomes more difficult due to decreased home affordability. Here are tips on how you can potentially avoid further costs as well as headaches:


Be prepared to be flexible

Monthly mortgage payments in a rising mortgage interest rate environment may be less affordable than when, for example, rates dipped below 3% in 2020 and 2021 during the COVID pandemic.¹ If you’re buying a house, be prepared to adjust your budget accordingly and consider the possibility that you may not be able to afford your dream home.

A consideration is to wait until winter months when the homebuying season tends to slow. With less competition during these months, you’re likely to have more bargaining power with sellers and lenders alike.²

If you’re selling, rising mortgage interest rates reduce demand, and when demand falls—you may feel pressure to lower your price. Consider that you may not earn top dollar for your home as perhaps your neighbor did in 2021.


Beware of waiving inspections

During the early days of COVID in 2020, buyers were willing to forgo a home inspection that is often required in a home sales contract, so their offer looked more favorable to sellers. In fact, more than 1 in 10 waived contingencies according to a 2021 Realtor.com survey.³ However, in a higher mortgage interest rate market, buyers often have more bargaining strength, and a home inspection, while costly, is worth the extra upfront fee, according to most homebuyers.⁴

If you are selling your home, it is often recommended to get a home inspection prior to putting your home on the market as it may help put you in a better position for making a realistic decision setting a selling price for your home. Buyers are likely going to want to negotiate on that price—particularly when mortgage interest rates are higher.


Confirm pre-approval is based on current interest rates

Another consideration for home sellers when mortgage interest rates are rising is that they need to factor in the buyer’s ability to afford a home and confirm that their mortgage pre-approval is based on current mortgage interest rates. If you accept an offer from a buyer who was pre-approved at a lower rate and no longer qualifies, that’s valuable time lost.

To prevent this scenario, it is wise for sellers to work with a buyer who is partnering with either a mortgage broker, a direct lender, or secondary market lender—who can shop on behalf of the buyer to provide a variety of lending options (such as conventional, fixed-rate, or adjustable-rate mortgages).

If you are the buyer, it helps if you go into the mortgage application process with some idea of how different interest rates will affect your monthly payments, as well as your ability to afford those payments. Getting a mortgage pre-approval letter is always a good practice, since it lets sellers know that you already have the proper financing in place. However, pre-approval doesn’t last forever, according to better.com⁵, so it’s important to coordinate your home buying timeline and leverage the pre-approval letter while it lasts.


Don’t try to time the market

Rather than waiting for mortgage rates to come down, consider the non-financial reasons that make it the right time to buy or sell. For example, you may be expanding your family and need more space, want to move closer to your job to cut commuting time and expenses, or perhaps need a bigger footprint for a permanent work-from-home space. If you’ve decided to buy a new home, it’s important to evaluate your needs and long-term goals while making sure you’re financially ready—from your down payment to interest on a home loan—rather than time the market.

A rising mortgage rate environment shouldn’t cause homebuyers to pause or drastically alter their plans. The interest rate and term you are quoted depends more heavily on your credit score, loan-to-value ratio, and loan type.⁶

As with any financial decision, if you are considering a residential home purchase of a primary, secondary or investment property, the better prepared you are, the more likely you’ll achieve your goal. Talk to your Janney Financial Advisor—they can access the Advisor Credit Exchange platform to:

  • Compare your lending request and profile against lender requirements to generate pre-screened credit proposals.
  • Explore the available options provided by participating lenders to help identify solutions based on your unique circumstances, preferences, and financial goals.
  • Initiate a new purchase, refinancing, cash-out refinancing and/or pre-approval.


Working With Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.

Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.


Disclaimer

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

This is to be used for informative purposes only. In no event should this be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, securities prices, market indexes, as well as operational or financial conditions of issuers or other factors. Past performance is not indicative of future results.

1. Mortgage Rates Chart: Historical and Current Rate Trends, Mortgage Reports, September 2022

2. When is the Best Time to Buy a House? Consumer Affairs, July 2022

3. First-Time Home Buyers Boost Housing in 2021, Realtor.com

4. How Much Does a Home Inspection Cost?, Forbes Home, July 2022

5. How Long Does a Mortgage Pre-Approval Last?, better.com, August 2021

6. How Are Mortgage Rates Determined? nerdwallet, March 2022

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