Should I Buy a Home Now? Or Wait for Lower Mortgage Rates?

Remember when market watchers forecast mortgage rates under 6% this year? What happened?

In the big picture, interest rates have been in a tug of war between the White House and the U.S. central bank. But at the end of the day, it’s the bankers’ job to set the federal funds rate. And they’re doing their job. So far, they’ve resisted political pressure and have raised rates to tame inflation.

So, if you’re asking whether to wait for bank rates to drop, you could be waiting a long time. The best way to proceed? Buy when you feel ready, without trying to time the market. All the more so now, when the federal government is clearly setting up a high-interest environment, with no easing in sight.

How Low Can You Go?

In a slow market such as the one we have now, sellers can’t take serious home shoppers for granted. And indeed, sellers have shown a willingness to discount their asking prices this year. Yet it’s probably your interest rate that will impact your finances most over the term of the mortgage.

Rates are elevated. They’re hovering at or even above 7%. This means acquiring a deed adds up to thousands more in housing costs annually than a purchaser would have paid if rates had, as hoped, gone down to 6% or less. Buying at 7% and up is a tough call to make. Consider, though, that these rates are exactly why we’re now in a “buyer’s market.”

It may be possible to get a lower rate, though. Hopeful buyers should check around. Current rates from the Federal Housing Administration (FHA) or the Department of Veterans Affairs are under 7%.

Note that the interest rate you get will also be based on your financial situation. Someone with a high credit score presents the lowest lending risk. Lenders reward this by extending more favorable rates.

At the moment, according to Experian, people with 780+ scores are getting a rate of 6.85% on a 30-year fixed-rate mortgage on average. Contrast this with the rate extended to someone with a 620 score, who’s getting 7.6% on average. This is one way the well-off become better off, and it’s a major reason to come into a deed transaction from a position of financial strength.

Getting the Best Deal on a Deed, at Any Rate

Once you find your mortgage consultant, ask for help with loan cost estimates. This is all about selecting the best loan package—and that’s more than an interest rate. And we can’t just take a rate at face value. Find out if you’ll be paying more for points, or forking out more at closing, in return for a relatively good rate.

Ask how your high and low home price scenarios would play out. What is the least and most you’re envisioning for a down payment? Is the developer or lender able to discount your interest rate? In your possible scenarios, how much would your monthly loan payment be—including escrow costs such as insurance and school taxes, and association dues, if any?

Note that the interest rate is not firm until it’s locked in. Be aware that the rate could go up markedly by closing day. Some buyers pay extra to get an extension on the rate in case of delays.

If you prepare and stay alert to the answers from your loan expert, you won’t be blindsided by costs later, after you’ve already set your sights on a particular home for sale.

Once you’ve got your deed, regardless of the rate, there’s one way to avoid paying much of the interest. That’s to pay off more of the loan principal every month. Most mortgages allow borrowers to pay more than the expected payment each month. Those who can pay the loan down faster get out of the loan faster too, and pay less in interest over the course of the loan. If they can refinance to a lower rate at some point, that’s great too. (But closing costs mean “I’ll refinance if the rates come down” isn’t typically a slam-dunk.)

Grants and discounts are out there now to reassure hesitant buyers. Make down payment assistance part of your initial discussion with the mortgage consultant.

Monthly Housing Costs Need to Leave You With Cash Reserves

Every month, a financed home requires payments that cover the loan principal, the interest charged on the loan, insurance and property taxes, possible PMI in case you don’t have 20% to put down on the home, possible condo or neighborhood association charges, electricity and water, waste charges and upkeep of the home and land.

Then there are life’s little surprises. A buffer is always helpful and necessary for the incidents we can’t predict. Money must be in reserve not only for the unexpected, but also for:

• The cost of moving from home to home.

• The need for appliances or furnishings, and any immediate replacements or repairs.

• Retirement funding. 

• Educational and lifestyle expenses.

• Medical and/or caregiving costs.

• Potential career or relationship changes.

Self-care is important here. Readiness to buy a home involves knowing what you can regularly spend on your mortgage and related costs each month, yet still have funds in the bank.

U.S. households feel the pressure of rising costs. Yet buying a home can offset the impact of inflation.

We Believe in the Power of Deeds

Right now, mortgage rates are being pressed up by the effects of war and federal debt, as well as actions from the U.S. central bank. An end to the military actions in Iran could ease the resultant inflation, and that could push rates down. So, should you wait for conditions to change in hopes of a lower interest rate environment?

It might be right to wait if you have concerns about paying monthly costs, once you sit down with a mortgage consultant and hash them out. That said, it’s important to be realistic. Waiting for rates to come down isn’t going to bring interest rates down. And it’s your overall financial strength—not interest rates, not even the surrounding economy—that matters most in the question of when to acquire a deed. Given enough time, homeownership builds equity despite the surrounding economic environment. And that is how generations thrive.

The question is not when the market is ready. The question is whether you are. So, we believe hopeful deed holders should feel encouraged…and be prepared.

With all of that said, we provide this article as general information and commentary only. It is not financial advice. A respected real estate agent, a dedicated loan officer, or a thoughtful financial adviser can help you examine your particular financial needs and potential. We wish you the very best in your quest.