Is It A Good Idea To Get A Mortgage In A Recession? Find Out Now

The home-buying market screamed its way into every publication you read and every dinner-table conversation you participated in for the past year. Not only did people pay the listed price for a home, they fought to outbid each other. It made sense — mortgage interest rates were at the lowest in history, the pandemic encouraged nesting, and folks were flush with cash from government stimulus money and nowhere to spend it.

As inflation surges, mortgage rates rise and recession looms, it is still a good time to apply for a mortgage and buy a house?

Yes! Benzinga explains why it’s a good idea to get a mortgage in a recession.

>> See the best mortgage rates in real time now

Is It a Good Idea to Get a Mortgage in a Recession?

Getting a mortgage in recession can be a sound financial decision. In August 2022, experts lack consensus on whether the U.S. is in a recession. Two consecutive quarters of negative growth mark a technical recession, but other factors like strong unemployment rates contradict that definition. If recessionlike economic conditions continue, it still could be an optimal time for you to take out a mortgage to buy a house.

Pros:

Get a Better Deal

With fewer people looking for houses in weakening economy, you can get a better deal. Most people know someone who paid more than the asking price in a lightning-round style home purchase. In a recession, you can offer less than the asking price and often get it. If you aren’t in a rush to move, you can wait a few weeks and a desperate seller might drop the price.

Less Competition

It’s never nice when you’re elbow-to-elbow with a crowd to nab something you want. In a recession, the playing field empties, and your shot on goal is clear. If you’ve got a steady job and a down payment saved, you’re ready to buy.

More Attention from Your Lender

Shopping for, buying and getting service after the sale go best when you’re not competing with a flood of other purchasers. A sales and service team only has so many hours in a day, and if employees have to handle more clients than they can reasonably deal with, they won’t be able to give your case the attention it deserves. As home buying slows in a recession, your mortgage lender will be more responsive to your questions and needs, and your closing date window will be much narrower. 

Seller Concessions

As a seller, when you need to sell a house and no one seems interested, you start to get nervous. That works to your advantage as a buyer. Even if the seller won’t come off the price, they may agree to a roof replacement, new pool pump or expensive patio furniture left behind.

Cons:

Job Loss Potential

Although unemployment remains at historic lows, recession usually brings layoffs and high unemployment. If you commit to a mortgage for a home in a particular town, losing your job could be devastating if you can’t find another one at a comparable salary. Although more remote jobs than ever are available, finding a new job isn’t easy.

Higher Monthly Mortgage Payments

A higher interest rate means you’ll pay more per month for your mortgage. For example, a 30-year fixed $300,000 mortgage at 3% means a $1,265 monthly payment whereas the same amount at 6% results in a $1,799 monthly payment.

Harder to Gain Bank Approval

All those documents the bank makes you upload? With the threat of recession, lenders scrutinize your employment record even more closely because a loan officer knows that layoffs rise in a recession. You can find a list of the bank bank statement only lenders on Benzinga.

Title Issues

Ensuring a clear title to prove ownership of the home is one of the processes that goes along with buying and closing on a house. During a full-blown recession, a seller may be in debt or foreclosure, which can cloud or slow the ability of the title search company to complete its task in time for closing.

Competition with Professional Homebuying Companies

Homeownership enjoys a reputation as being as American as apple pie. However, a new trend finds corporations buying single-family homes with the aim of turning Americans into lifetime renters.

How Do Inflation and Interest Rates Impact Homeownership?

Inflation causes all interest rates to rise, including those for a home mortgage. The interest rate is the cost you pay for borrowing money. When interest rates are low, as they have been for a long time, a mortgage is cheaper.

Impact: Higher rates mean you’ll pay more in interest per month and over the life of your loan.

Impact: Banks get more cautious, so your financial picture needs to be clear and strong to gain loan approval.

Impact: Unemployment often rises during periods of inflation, and losing your job could make your mortgage payment unaffordable.

Should You Buy a Home in Urban or Suburban Areas?

Although the country mouse and the city mouse would duke it out for hours over whether it’s better to live in a suburb or a city, both places have charms and miseries that affect where you want to live. From a financial standpoint, there’s no right answer about where it is better to buy. Your job situation and personal preferences should determine your choice.

Urban

Tip: In a city condo or walkup, you don’t have to worry about keeping up a yard or cleaning a big home.

Tip:  If you lose your job, it’s easier to find another one in a big city because of its many employers and industries right there.

Tip: Cities are in high demand for tourists, so you could become an Airbnb host to earn extra money if inflation continues and a recession worsens.

Suburban

Tip: Roomier homes and your own yard can make living more pleasant. 

Tip: Many suburbs function as bedroom communities for larger cities, so you’ve got access to other opportunities for jobs nearby.

Tip: Suburban homes are usually bigger, so you could rent out an extra room if times get tough.

Compare the Best Mortgage Companies during a Recession

In and out of a period of recession, the best home mortgage companies make the process as rapid and efficient as possible. Whether you go with an online lender or brick-and-mortar bank, you want to choose a responsive lender with streamlined application process. Getting a mortgage means proving that you possess the financial means to pay back what will probably be the biggest amount you’ll ever borrow. You’ll have to provide many documents to prove your financial status, and the easier it is to get those documents to the lender, the better the process. Benzinga found the best mortgage companies during a recession.

1. New American Funding
2. Angel Oak Home Loans
3. Luxury Mortgage
4. Rocket Mortage
5. North American Savings Bank

Frequently Asked Questions

Are mortgages more expensive in a recession?

The interest rate your lender charges during a recession can be higher, making your monthly payments higher and a 30-year home mortgage more expensive. However, if you get a mortgage with a higher interest rate and the interest rates drop, you can refinance the mortgage. If you’ve built up equity in the house, a refi lets you take out additional cash for a renovation project.

Will interest rates rise during a recession?

Interest rates often fall during a recession and may begin to rise as the economy recovers. In summer 2022, indications show that the U.S. may already be in a recession, and interest rates are rising. However, in other recessions, interest rates dropped.