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Is Getting a Mortgage in a Recession a Smart Idea?

What you'll learn: Examine real estate impacts of a recession and weigh the pros and cons.


Is Getting a Mortgage in a Recession a Smart Idea?


If buying a home didn’t already have enough ingredients – sourcing the perfect property, layering on a perfect offer, adding in a down payment – throwing a recession into the mix can really leave a bad taste in your mouth.

But buying a house during a recession isn’t necessarily a recipe for disaster. In fact, depending on your circumstances it can be a winning combination. Let’s look at some common real estate impacts of a recession and weigh the pros and cons from the POV of a homebuyer. Then, you can determine if the time is right or if now is a bad time to buy a house.

Tightened household budgets

Inflation, increased unemployment, and a general feeling of uncertainty during an economic slowdown or recession can cause many families to reduce spending. That creates both opportunity and risk for a homebuyer.

PRO: You may have less competition

When budgets are tight, homebuying tends to be less appealing to consumers. That’s good news for someone considering buying a house during a recession. You can slow down and evaluate your options without so much pressure from other buyers. It may also mean you have more property choices.

CON: Hardships can happen to anyone

Nobody likes to imagine themselves in an adverse position. But even with a stable income, you may still feel the effects of a recession through rising food costs and gas prices. It’s important to consider how your budget may be affected, in both big ways and small.

Decreased home values

When the supply of for-sale housing outnumbers demand, property values tend to decrease. That’s the hallmark of a buyer’s market and can work for or against you in the homebuying process.

PRO: You might get a better deal

If a property has been on the market for weeks and isn’t receiving compelling offers, you may have a better opportunity to negotiate terms in your favor. That could mean a lower sale price, the seller covering some of your closing costs, or contingencies that help you feel comfortable about the sale.

CON: You may have less buying power

The flip side is that higher inventory during a recession can affect your own home value as well. If you’re planning to use the equity from the sale of your current home to buy a new one, your funds might not stretch as far.

More foreclosures

Financial hardships can lead to mortgage defaults—possibly leading to foreclosures. When a lender has no choice but to sell a foreclosed property, bargain house hunters can show up in droves.

PRO: You might land a “steal”

It’s very possible to obtain a home below the market value if you know how to navigate a foreclosure sale. The key is knowing what you’re getting and being prepared for the additional paperwork and competition it can bring.

CON: It could be more expensive than you think

Property issues, hidden costs, and delays are some of the reasons many buyers avoid foreclosed properties. You may find yourself dealing with unforeseen repairs, paying back taxes, or figuring out how to have liens removed. The time and expense may not be worth it to you.

Less credit available

Lenders are not immune to business pressures from a recession. Generally, they reduce risk by limiting the amount of money available to borrowers and increasing credit guidelines.

PRO: Interest rates are generally lower

If the Fed lowers the federal funds rate in an attempt to strengthen a waning economy, mortgage rates usually follow suit. That means mortgage rates tend to go down, making buying a house during a recession appealing for many.

CON: It’s harder to qualify

Buying real estate during a recession can come down to a single factor: Do you qualify for a mortgage? Lenders may increase their standards for credit score, debt-to-income ratio, and income qualifications to ensure borrowers don’t get in over their heads.

Buying a house during a recession: The bottom line

Recessions are a normal cycle of the economy. While there are advantages and disadvantages to buying a home during a recession, it really comes down to what makes sense for you. People buy and sell homes every day, in all economic weather. There is no perfect answer – just what’s right for you.


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Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5


1Rates are updated daily at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.