If you’ve been wondering whether you should wait for mortgage rates to come down before you buy a house, you’re not alone. High rates and home prices have made many prospective buyers decide to sit out of the housing market. Over the past few years, we’ve seen mortgage rates climb from as low as three percent in 2021 to almost eight percent in early 2024. Many had predicted that rates would come down this year, but they haven’t decreased as much as expected.

Should you continue to wait for rates to come down before buying a home? There is no easy answer to this question because there are many factors to consider and every individual’s situation is different. There are many reasons to consider going ahead with your home purchase and circumstances when waiting a bit longer may be the best decision. We’ll walk you through those considerations.

Reasons to Buy a Home Now

Mortgage rates are unpredictable and not likely to come down significantly quickly.

If you’re waiting for rates to come back down to three percent, most experts agree that isn’t likely to happen in the foreseeable future. As of May 2024, the average 30-year mortgage rate is right around seven percent. The Mortgage Bankers Association (MBA) has forecasted that the 30-year fixed-rate mortgage is likely to average 6.7 percent in the second quarter of 2024 and end 2024 around 6.4 percent. But mortgage rates are difficult to predict. There have been many fluctuations so far in 2024. Trying to time the market is challenging, if not impossible.

There will be increased competition and home prices when rates decrease.

Time spent waiting for rates to drop could result in missing out on desirable homes that are available, and there is likely to be increased competition for when rates do decrease. You could face bidding wars and home prices are likely to increase when demand increases. Buying when there is less competition could be advantageous.

Reasons to Wait to Buy a Home

The potential savings can be significant.

The primary reason to wait for rates to come down is the potential for saving money. A lower interest rate means lower monthly mortgage payments, saving you a substantial amount over the life of the loan. Higher interest rates result in higher monthly mortgage payments, which can strain your budget and reduce your purchasing power. This may limit your ability to afford the home you desire or force you to compromise on other financial goals.

There will be financial stress created with a high mortgage payment.

Take some time to assess your current financial stability and ability to afford higher mortgage payments. As a general rule, your mortgage payments should not exceed 28 percent of your monthly pretax income. Also consider factors such as employment stability and existing debt obligations. If a higher mortgage payment that comes with high interest rates is going to cause you significant financial stress, it may be best to wait.

You’ll have more time to financially prepare.

Delaying your home purchase allows you more time to strengthen your financial position. You can save for a larger down payment, thereby reducing your loan-to-value ratio and potentially qualifying for better loan terms. A sizable down payment not only lowers your monthly mortgage payments, but also decreases the overall interest paid over the life of the loan. It can also enable you to avoid paying for mortgage insurance if you put down 20 percent or more. Additionally, you may want to work on improving your credit score, which can positively impact the interest rate offered to you.

You enjoy the flexibility of not owning a home.

Purchasing a home is a financial decision and a lifestyle choice. Some people may appreciate saving money by finding a reasonably priced rental to share with roommates or they might simply enjoy that type of living arrangement. Or you may be unsure whether a job or relationship may become a reason for you to relocate. Waiting to buy a home until your personal circumstances stabilize can prevent the stress and financial strain of selling or relocating shortly after purchasing.

Need further guidance?

Ultimately, the decision whether or not to wait for rates to come down to buy a house depends on various factors, including your financial situation, market conditions, and lifestyle. While waiting for lower rates can offer potential savings, it also carries risks such as missing out on a great home or ending up in a bidding war that can push you out of your budget range. But remember, regardless of market fluctuations, finding a home that meets your needs and fits within your budget is the goal.

Contact one of Citadel Credit Union’s Mortgage Loan Advisors. They are experienced local consultants who can answer all your questions and talk through your options to help decide what might work best for you.