Should You Wait for Mortgage Rates to Drop?

If you're thinking about buying a home, you may be asking a question many buyers have considered:

Should I buy a home now, or wait for mortgage rates to come down?

It's understandable to watch mortgage rates closely. Even a change in interest rate can affect your estimated monthly payment and the total cost of borrowing.

But your mortgage rate is only one part of the homebuying equation.

Home prices, available inventory, competition from other buyers, your down payment, loan program, monthly budget and long-term plans can all play a role in determining when buying a home makes sense for you.

Instead of trying to perfectly time the mortgage market, it may be more helpful to look at the entire financial picture.

Should I Wait for Mortgage Rates to Go Down Before Buying?

There isn't one answer that's right for every buyer.

Waiting for lower mortgage rates may sound appealing, but future rates can't be predicted with certainty. And mortgage rates aren't the only thing that can change while you wait.

Home prices can rise or fall. Inventory can change. More buyers may enter the market. Your income, savings, credit profile and personal circumstances may change as well.

That's why making a homebuying decision based solely on where you think mortgage rates might go can be difficult.

A better place to start may be:

Can I comfortably afford the home and estimated monthly payment based on today's numbers?

If the numbers work for your budget and homeownership fits your plans, today's mortgage rate doesn't necessarily have to prevent you from exploring your options.

If the payment would stretch your budget too far, waiting, increasing your down payment or considering a different purchase price may make more sense.

Why Mortgage Rates Aren't the Only Number That Matters

Imagine mortgage rates fall in the future.

That sounds like good news for buyers and it can be. But lower rates could also bring more buyers back into the housing market.

Depending on local market conditions, increased buyer demand could mean more competition for available homes.

On the other hand, a higher-rate environment may sometimes coincide with less competition, longer listing times or greater negotiating flexibility in certain markets.

Neither scenario is automatically better.

The important thing is understanding how mortgage rates, home prices and market conditions work together rather than making your decision based on one number.

Does the Federal Reserve Set Mortgage Rates?

No. The Federal Reserve does not directly set mortgage rates.

This is an important distinction because headlines about Federal Reserve rate decisions often lead consumers to assume mortgage rates will immediately move by the same amount.

Mortgage rates are influenced by broader financial-market conditions, including bond-market activity, inflation expectations and the overall economic outlook.

Federal Reserve policy can influence those conditions, but a change in the federal funds rate does not automatically result in an identical change in mortgage rates.

For example, a 0.25 percentage-point change in the federal funds rate does not necessarily mean mortgage rates will change by 0.25 percentage points.

What Else Should Homebuyers Consider Besides the Mortgage Rate?

When deciding whether you're ready to buy a home, consider the entire financial picture.

That may include:

• The purchase price of the home
• Your available down payment
• Your estimated monthly principal and interest payment
• Property taxes and homeowners insurance
• Mortgage insurance, when applicable
• Available loan programs
• Closing costs
• Your emergency savings
• Other monthly debts and expenses
• How long you expect to own the home
• Current housing inventory and competition in your local market

Looking at these factors together can give you a much better understanding of affordability than simply watching national mortgage-rate headlines.

What Can I Do If the Monthly Payment Feels Too High?

If the estimated payment on a particular home doesn't fit comfortably within your budget, that doesn't necessarily mean your only option is waiting for mortgage rates to fall.

There may be other scenarios worth exploring with a mortgage advisor.

For example, you could compare:

A different purchase price.
A lower home price could have a meaningful impact on your monthly payment and the amount you need to finance.

A different down payment.
Changing your down payment can affect your loan amount and potentially other components of your mortgage.

Different mortgage programs.
Depending on your qualifications and the property, different loan programs may offer different features and requirements.

Discount points.
In some situations, borrowers may have the option to pay discount points upfront in exchange for a lower mortgage rate.

Seller concessions.
Depending on the transaction and loan program, a seller may agree to contribute toward certain allowable closing costs.

A mortgage advisor can help you compare these scenarios and understand how each could affect the overall cost of buying a home.

What Happens If Mortgage Rates Drop After I Buy?

If mortgage rates decline after you've purchased a home, refinancing may be an option to explore.

Refinancing replaces an existing mortgage with a new loan. Whether it makes financial sense depends on several factors, including the new interest rate, closing costs, remaining loan balance, borrower qualifications and how long you expect to own the home.

It's important, however, not to purchase a home based solely on the assumption that you'll be able to refinance later.

A mortgage should make sense for your budget based on the information and financing available when you purchase the home.

Is There a "Perfect" Time to Buy a Home?

Probably not. Mortgage rates change. Home prices change. Housing inventory changes. Your own financial situation changes.

Trying to perfectly time all of those variables can make an already significant decision even more complicated.

Instead, consider whether:

You're financially prepared.
The monthly payment fits your budget.
You've found a home that meets your needs.
You understand your financing options.
Homeownership fits your longer-term plans.

Those questions can be more useful than trying to predict exactly where mortgage rates will go next.

Start With Your Numbers, Not the Headlines

Mortgage-rate headlines can be useful for understanding the broader market, but they don't tell you what buying a particular home would look like for you.

Your purchase price, down payment, credit profile, loan program and other factors all influence your individual financing options.

That's where talking with a local mortgage advisor can help.

A First State Bank Mortgage Advisor can walk through different scenarios, answer questions about available mortgage programs and help you better understand what your estimated payment could look like.

Whether you're ready to buy now or simply trying to determine what you may be able to afford, understanding your options is a good place to start.

Ready to run the numbers?

Connect With a First State Bank Mortgage Advisor