Many potential homebuyers ask if it would be wise to wait until mortgage rates drop before purchasing, however doing so could put your plans for homeownership at a disadvantage.
When rates fall, buyers who had been sitting out could return in a flood, leading to bidding wars and higher prices.
1. It’s Unpredictable
Purchase of a home is one of the largest financial decisions of your lifetime, but mortgage rates can be difficult to anticipate. Although you might be able to lower them over time with careful management and strategies implemented by experts, economic factors often change and make it impossible to forecast exactly what to expect when it comes to rates.
Many experts anticipate a decrease in mortgage rates later this year and into 2024, though likely not at the same magnitude seen in 2020 due to inflation’s continued presence causing rates to go up despite robust GDP numbers.
Once mortgage rates decrease, they often trigger an upsurge in demand that leads to bidding wars and increased house prices – buying now could save you from incurring these higher costs in the future. Furthermore, there are numerous strategies you can employ to bring down your mortgage rate including increasing down payments, improving credit scores, purchasing discount points and shortening loan terms.
2. It’s Risky
Mortgage rates may currently be at historic lows, but that doesn’t guarantee they’ll stay that way. More likely than not, as the Federal Reserve tightens monetary policy in an attempt to combat inflation, mortgage rates may begin rising in response. Rising mortgage rates bring more potential homebuyers onto the housing market – potentially increasing competition and driving prices higher; experts advise homebuyers take action when their numbers and circumstances align rather than waiting on lower rates to buy.
Consider this: Mortgage rates have not been this low since COVID-19 pandemic; and even then they were closer to 3% than today’s average rates. Is the risk worth taking?
3. It’s Unaffordable
Homeownership is widely seen as one of the best ways to build wealth, yet rising interest rates are making homeownership increasingly challenging for many people. Redfin’s report found that an increasing number of renters are losing hope that they’ll ever be able to afford one of their own homes.
One major cause is mortgage rates, which have reached levels not seen since the 1980s. Home prices have also continued to increase faster than incomes – making housing unaffordable for millions of Americans.
Lower mortgage rates would make qualifying for loans easier as monthly payments would decrease, helping borrowers meet lenders’ debt-to-income ratio criteria for loan approval.
If you can’t qualify for a mortgage at current rates, alternatives might include moving to another location, purchasing a smaller home or downsizing your current one – but beware; each can come with its own risks.
4. It’s Time to Buy
Mortgage rate droppers hope that interest rates will drop, making purchasing homes simpler and cheaper; but this may not always be true: when interest rates do decrease, buyer demand often spikes leading to bidding wars or elevated house prices that nullify any benefits from lower interest rates.
Truly, it makes little sense to try to time mortgage rates as they change; rather, prepare yourself to be a homeowner by strengthening your credit score and saving for a down payment.
If you meet these criteria and are financially stable, now could be an opportune time to begin house hunting. Not only can you gain more bargaining power in a seller’s market; you can also avoid future mortgage rate increases that might strain your budget. And once you find the home of your dreams, refinancing could enable you to take advantage of lower interest rates down the line.