Prediction: Even After Mortgage Rates Fall, Buying a Home Still Won’t Be Easy

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Lower mortgage rates mean home buyers will be on easy street, right? Perhaps not. Read on to see why you should still expect difficulty if you’re buying soon. [[{“value”:”

The first federal funds rate cut finally happened, and it’s expected to cause a chain reaction across consumer interest rates, including those for credit cards, personal loans, and mortgages.

We’re already seeing mortgage rates decline, and the biggest names in the mortgage business (including the Mortgage Bankers Association, Wells Fargo, and Fannie Mae) expect mortgage rates to keep falling from their current average of 6.09% down to 6% (or perhaps less, the way things are looking lately) by the end of 2025.

If you’ve been sitting on the housing market sidelines over the last couple of years with rates around 7%, this turn of events surely has you excited. But before you rush out and start house hunting, let’s take a closer look at what lower rates might mean for you as a buyer — and how you can get ready to make an offer.

Goodbye, 7% rates — hello, more competition

Here’s what you might expect to pay for principal and interest on a $300,000 mortgage with a rate at 6% vs. 7%:

That’s a sizable difference, both in your monthly payment and in the amount of interest you’ll pay on your home over those 30 years.

But you know who else will be excited about saving money on a home purchase? All your fellow aspiring buyers who’ve been sitting out of the market thanks to high mortgage rates. So while you might pay less for your mortgage if rates keep falling, you may end up paying more for the house itself thanks to increased competition and more offers from other eager buyers.

You can increase your chances of success

I’m sorry if this is a bummer. I just became a homeowner myself, and while I was getting ready to buy (by paying off debt and saving up money for two years), I was also watching those mortgage rates more than double.

When I decided to become a homeowner (the end of 2021), the average rate for a 30-year fixed mortgage was 3.11%. And when I actually found a house to buy and formally applied for a mortgage (early spring 2024), that number was 6.87%. Oof.

But while I certainly couldn’t help the mortgage rates at the time I bought my house, I made a few other moves that you can repeat to give yourself the best chance of getting to the home-buying finish line.

Improve your credit

Even if you intend to buy sometime in 2025, you can start doing this right now. Payment history accounts for 35% of a FICO® Score — lenders want to make sure they’ll be repaid on time and in full when they extend loans. You can improve your score by resolving to make every payment on time every month — and you can even use auto-pay if you’re forgetful.

The other big piece of the credit score puzzle is a bit trickier. If you’re carrying a lot of debt already, it’s worth paying off as much as you can before applying for a home loan. Credit utilization (how much credit you’re using vs. how much you have) makes up 30% of your FICO® Score. Ideally, your ratio should be less than 30%.

If you have $10,000 available to you on credit cards, you should be using less than $3,000 of that at any given time. Paying off debt is hard — I’ve been in your shoes, and the method that worked for me was picking up a side hustle. It’s more effective to increase your income than cut all the fun spending out of your life.

As a bonus, you can go into a home purchase with less debt, freeing up more of your income for the substantial ongoing expenses of homeownership.

Shop around — and get pre-approved

Don’t go with the first mortgage lender you talk to. Different lenders offer different rates, as well as different types of home loans. Aim to get pre-approved with several to see what you can expect to pay for a mortgage. Having a pre-approval in hand will also be an asset when you start house hunting and find the house of your dreams — you can move fast and make that offer.

Work with a great real estate agent

Speaking of making offers, a real estate agent can be your best friend and biggest supporter when buying a home. Mine was a rock star, and I’m so grateful for her support and insight through the process. Read online reviews and ask local friends and family for recommendations.

Be patient

Finally, try not to get too worked up during the home-buying process. It’s certainly stressful, but compromising your health and well-being does no one any good. It might take multiple offers to get one accepted, so try not to get too attached to any one home before you get the call that the house can be yours.

A home is likely to be the biggest purchase you ever make. Take a deep breath and steel yourself — it’s probably not going to be easy, even with lower mortgage rates. But when you’re finally a homeowner, it will have been worth it.

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