Divorce often requires selling the marital home, but in a higher-interest rate market, that decision becomes even more complex. Not only do you need to sell at the right price, but you also need to consider the budgetary impact of buying your next home—all while navigating the emotional and logistical hurdles of divorce.

This guide will help divorcing homeowners understand the challenges of selling and buying in a higher-rate environment and provide strategies for making smart financial decisions.

Challenges of Selling the Marital Home in a Higher-Interest Rate Market

When interest rates are higher than we are used to let us say, buyers become more cautious, and the real estate market shifts. Here are the biggest challenges divorcing homeowners face when selling:

1. Decreased Buyer Demand
   • Higher mortgage rates mean monthly payments are more expensive, potentially limiting the number of qualified buyers.
   • Buyers tend to be more hesitant to jump into the real estate market, waiting for rates to drop or negotiating harder on price when they do.
2. Longer Time on the Market
   • With fewer buyers actively searching, homes can take longer to sell.
   • Sellers may need to make price adjustments or offer incentives to attract buyers.
3. Pricing Dilemmas
   • In a slowing market, pricing a home too high leads to prolonged delays and potential price reductions later.
   • Underpricing can mean leaving money on the table, which is crucial when dividing assets in a divorce.
4. Equity Concerns & Refinancing Hurdles
   • If you refinanced at a historically low interest rate (e.g., 3%), selling means giving up that advantage.
   • If you purchased the home in the past couple of years, while home values have been increasing annually, equity may be limited, affecting your ability to make your desired down payment on a new home.
5. Emotional & Legal Roadblocks
   • One spouse may be emotionally attached to the home, making selling more difficult.
   • Disagreements over the sale price, repairs, or who lives in the home during the sale can cause delays.

Challenges of Buying a New Home After Selling

Once the marital home is sold, both spouses need housing, some choose to buy a new home, which presents additional challenges:

1. Higher Monthly Mortgage Payments
   • The same home that was affordable at 3% interest is much more expensive at 7% or higher.
   • Buyers often need to adjust expectations, purchasing a smaller home or different location. There is nothing worse than being “house poor.”
2. Down Payment & Affordability Issues
   • If equity from the sale is low or is split unevenly, one or both spouses may struggle to afford a down payment.
   • Higher mortgage rates mean higher debt-to-income (DTI) ratios, making it harder to qualify for a mortgage, or at least lessening the maximum mortgage qualified for.
3. Credit & Income Adjustments Post-Divorce
   • If one spouse had little to no income during the marriage, they may not qualify for a mortgage alone.
   • Credit scores may have dropped if joint debts were not managed properly during the divorce.
4. Competitive Housing Market
   • Despite higher rates, housing inventory is still limited, making it difficult to find a new home in certain Michigan markets.
   • Buyers often compete with all-cash offers, appraisal guarantees, or investors who can move quickly.

Strategies for Selling the Marital Home in a Higher-Rate Market

While the challenges are real, there are strategies to help maximize your home sale and transition smoothly to a new property:

1. Price the Home Strategically
   • Work with a real estate agent who understands the local market and can price the home competitively.
   • Consider offering seller concessions, such as covering part of the buyer’s closing costs, to make the home more attractive.
2. Enhance Curb Appeal & Make Cost-Effective Repairs
   • Buyers in a higher-rate market expect move-in-ready homes to justify their higher payments.
   • Simple upgrades (paint, landscaping, minor repairs) can help the home sell faster without major costs.
3. Negotiate Smartly
   • Be open to contingencies, such as the buyer needing to sell their current home before buying yours. Not everyone can qualify for the new mortgage while continuing to pay the current one.
   • If you cannot get your asking price, consider offering an Interest Rate Buy-Down.
4. Time the Market Carefully
   • If possible, list the home in the spring or summer, when buyer demand is typically higher.
   • If urgency is not a factor, consider waiting for a slight rate drop before listing.

Strategies for Buying a New Home After Selling

1. Work with a Certified Divorce Lending Professional (CDLP)
   • A CDLP can help you qualify for a mortgage even if you are using spousal support or have a complicated financial situation.
   • They also ensure your financing aligns with the terms of your divorce settlement.
2. Consider Alternative Financing Options
   • If fixed interest rates are higher than you would prefer, adjustable-rate mortgages (ARMs) can offer lower initial rates.
   • Seller financing (Land Contract) or rent-to-own options may also be worth exploring.
3. Be Flexible with Home Search Criteria
   • Consider various locations, home sizes, or property types to fit your new budget.
   • Focus on affordability over emotional attachment—buying a smaller home may be the best long-term move.
4. Improve Credit & Income Stability
   • If needed, take time to improve your credit score or increase your income before applying for a mortgage.
   • Having a strong financial foundation ensures better loan options and lower rates when the time is right.

Case Study: Selling & Buying in a High-Rate Market in Michigan

Scenario:

A divorcing couple in Pinckney needed to sell their marital home and each purchase a new residence. They bought their home in 2020 with a 3.5% mortgage rate, but rates had since climbed to near 7%.

Challenges:

• Buyer demand had slowed due to higher rates.
• The wife’s spousal support was not seasoned long enough to qualify for a mortgage.
• The husband wanted to buy quickly before rates climbed further.

Solution:

1. Strategic Pricing & Incentives – They priced the home competitively and offered a 2-1 interest rate buydown for buyers.
2. Temporary Rental for the Wife – She rented for six months while her spousal support payments were documented to qualify for a mortgage.
3. Adjustable-Rate Mortgage for the Husband – He used an ARM loan to secure a lower interest rate with plans to refinance when rates dropped.

Outcome:

• The home sold in 35 days, despite the slowing market.
• The wife qualified for a mortgage after renting short-term.
• The husband bought a home with lower initial payments while waiting for future refinancing opportunities.

Call to Action

For Divorcing Homeowners:

Selling and buying in a high-interest rate market requires strategy and planning. Let us discuss your options and find the best approach for your situation. Contact me today for a free consultation.

For Family Law Professionals & Realtors:

Partnering with a Certified Divorce Lending Professional (CDLP) ensures your clients make sound real estate and mortgage decisions that align with their divorce settlements. Let us collaborate to provide the best possible outcomes!