What homebuyers should (and shouldn’t) do as they wait for mortgage interest rates to drop

If you were a homebuyer looking for a home last summer, you didn’t have many options for securing a cost-effective mortgage. Inflation was still high, the federal funds rate was elevated to its highest point in decades and mortgage interest rates had risen in tandem, growing to the highest level since 2000.

But things are changing.

Inflation has steadily cooled this year (it dropped for the fourth consecutive month in July) and multiple cuts to the federal funds rate, currently frozen at a range between 5.25% and 5.50%, appear imminent. Mortgage interest rates have already cooled in light of these developments, down by around a point from where they were toward the end of 2023. And they can and likely will fall further if the Federal Reserve takes action during their final three meetings of 2024. 

Understanding this dynamic, then, homebuyers should consider taking some specific steps now while avoiding other, simple but easy-to-make mistakes. To that end, below we’ve gathered a list of what homebuyers should and shouldn’t do as they wait for mortgage interest rates to drop.

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What homebuyers should (and shouldn’t) do as they wait for mortgage interest rates to drop

While every buyer’s financial situation differs, many would benefit from taking a nuanced approach now. Here’s what they should (and shouldn’t) do:

Do: Shop around for lenders

To improve your chances of getting the lowest rate and most favorable terms, start shopping around for lenders now. But don’t just look at the rate as a low one could get eaten up by excessive fees, penalties and closing costs. Compare quotes from at least three different lenders to establish a baseline that you can use as rates fall.

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Don’t: Pass up on your dream home

If you find your dream home now and can afford the mortgage payments, even if they’re higher than you’d like to pay, buy it anyway. Most experts recommend an approach of “dating the rate and marrying the home.” In other words, today’s rates will drop in the future, so don’t get too hung up on paying slightly more to start. But that dream home won’t remain on the market forever and, if you wait, you could permanently lose the opportunity.

Do: Precisely calculate your budget

A home purchase, for many Americans, is the largest one they’ll make in their lives. It’s critical, then, to precisely calculate your budget in advance so you know exactly what you can and can’t afford. With rates seemingly changing every day, you should complete these calculations, both with the rates that are available now as well as with those that could be available at the time you’re ready to buy your home. 

Don’t: Wait for the perfect rate

Waiting for the perfect rate could be a major mistake. Yes, mortgage interest rates are likely to fall, perhaps significantly, in the weeks and months to come. But the perfect one, or even rates in the 2% to 3% range that were readily available a few years ago, are highly unlikely to return soon, absent a major economic driver. So don’t wait for that to happen or you could be waiting (and renting) for a long time. 

Do: Contact a real estate agent

An informed real estate agent could be the difference between you finding a home you love at a cost-effective price – and not. This is particularly true as the rate climate changes, which could complicate the homebuying process and drive up competition. In markets like the one buyers are entering now, a professional real estate agent could be well worth the minor percentage you’ll have to pay for their services at closing time. 

Don’t: Overextend yourself

A home purchase can be rewarding in multiple ways, particularly with the security it offers you and your loved ones. But that reward can easily feel like a punishment if you overextend yourself financially. While a cooling interest rate environment may lead you to buy a more expensive home than you normally would, it’s important to avoid the temptation to overextend yourself and, instead, stick to the budget you’ve already precisely calculated.

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The bottom line

Cooling mortgage interest rates present an opportunity for millions of potential homebuyers now. To capitalize on this timing, however, they’ll want to make select moves in advance and avoid other ones as best they can. By doing so, they’ll better position themselves for financial success in a home they truly love.