3 ways homeowners are responding to higher mortgage rates — and how you can help

It’s a tough time to be a home buyer or a home builder.

Whether you’re a contractor dealing with increased material costs or a first-time home buyer researching mortgage options, you’re in deep.

Rising inflation rates make business complicated for construction teams, and higher mortgage costs are keeping home buyers from taking the leap.

The rate for the 30-year fixed mortgage, the most popular U.S. home loan, has climbed above 5% for the first time in more than a decade. This is making homes less affordable, especially for lower-income groups and first-time buyers.

With all this uncertainty and economic stress, how are homeowners responding? And how can builders help their clients and their businesses stay afloat?

How homeowners are responding to the rising cost of building a home

With all of this economic uncertainty, first-time homeowners are left to get creative with their approach to the housing market. Here are three ways they’re responding to home prices and rising mortgage rates.

1. Buyers are considering different home financing options

With such a drastic increase in price of the popular 30-year fixed mortgage, buyers are considering different home loans to get started on their builds.

Among these are various alternatives, like different conventional mortgages, government-backed mortgages and more non-traditional methods.

Conventional mortgages include:

• 15-year fixed mortgages and adjustable-rate mortgages — Best for buyers who plan to pay off the loan faster, or who don’t plan on having a mortgage for a long time.
• Adjustable-rate mortgages — Allow buyers to have lower monthly payments at first. Good for a borrower who believes interest rates will be lower in the future.

Some government-backed mortgages could be available for buyers, as well.

• Federal Housing Administration loans — Help borrowers with lower credit scores buy a home
• Veteran Affairs home loans — Available for military service members and veterans
• USDA home loan program — Issued by the Department of Agriculture and available for income-qualified buyers in rural areas

As far as non-traditional home financing, this might look like getting a co-signer, or borrowing from a retirement account, parents or life insurance policies.

Of course, all these financing options have different implications for borrowers and can impact how a project is funded and completed.

2. Homeowners are paying down debt to qualify for loans

Although buyers likely want to get in their dream homes as quickly as they can, their priority may be in taking care of debt first to make a mortgage possible.

A borrower who has too much debt might need to pay it down in order to proceed with the mortgage process or to qualify for a higher loan amount. Additionally, high amounts of debt can negatively impact a borrower’s credit score, making the process that much more difficult.

If you’re a contractor trying to navigate this rocky market, it’s important to know the timeline of buyers who are working through debt.

3. New homeowners are stretching their construction budgets

It’s not just builders who face a cooling market. Those trying to buy existing homes are faced with skyrocketing prices that they simply cannot afford. Median existing house prices jumped 15% during the pandemic, to an all-time high of $375,000 in March 2022.

Major economic changes mean major budget changes. Most builders will see clients stretching their budgets. That’s why it’s more important than ever to be flexible, thoughtful and have the tools in your belt (literally and figuratively) to help see a project through.

Finding the right builder will be vital for buyers. Buyers might look for financing options, innovative techniques and materials, flexible home design and opportunities to work on more projects in the future when they have more money.  

Clients will be inclined to hire a construction team that understands their priorities. This means accessible client communication, streamlined project schedules and speedy and accurate estimates will make a huge difference – for both builders and buyers.

How your construction company can support homeowners with rising mortgage rates

Buildertrend has the tools to make the home building process easier for everyone.

Buildertrend is here on your journey of continued success. There are a variety of helpful features that make pre-construction easier and client communications clearer. Builders can also turn to our partnership with GreenSky® for the best financing options for your clients.

This program allows you to offer your clients specific and tailored financing decisions. You’ll be able to only offer selected loan plans based on the amount and type of project and utilize a payment estimator, which shows your clients three loan amounts and plans (it’s perfect for good, better and best sales presentations!)

Your client will also be able to make credit decisions quickly, get pre-qualified with no effect on their credit scores and choose their co-applicants to help increase approvals.

If you’re already a Buildertrend user, make sure you sign up with GreenSky® directly through your Buildertrend account to simplify the financing process and give your business the opportunity to grow – even in an uncertain economic climate.

Learn more by visiting our GreenSky® partnership page, or reach out to your account executive, who is always happy to help.