Elevated mortgage interest rates have sidelined potential home buyers, leaving many waiting to buy homes when the conditions are more favorable. Right now, the average interest rate for a 30-year year mortgage is around 7%.
But some experts are already predicting when rates could be significantly lower. The Mortgage Bankers Association (MBA) recently forecasted interest rates to be 6.1% at the end of 2024 and fall to 5.5% at the close of 2025.
Those are just forecasts, of course, and no one knows where interest rates will be two months from now, let alone two years. But there are indications that lower rates could be on the way.
The latest U.S. Labor Department data showed inflation was flat in October and rose just 3.2% over the past year. This was welcomed news that inflation has cooled down, and some experts took it as proof the Federal Reserve no longer needs to increase rates.
And some are even hoping that mortgage interest rate cuts are on the way. However, it’s more likely that Fed officials will hold rates steady for a while, observing if inflation continues to moderate before they decide on any further rate adjustments.
Instead of simply waiting for interest rates to fall, you can do a few things right now to put yourself in a better financial position when they do come down. Here are just a few.
Mortgage lenders will evaluate your finances partly based on how much debt you have relative to your income. If you have several credit cards maxed out and a big car payment, they may be less inclined to give you a mortgage.
It’s no secret that people with higher credit scores usually get better interest rates. If your credit score isn’t great, the good news is that there are mortgage lenders for bad credit. Even better news is that you can do something about your credit score.
I listed paying down your debt first on this list because not only could it help you obtain a mortgage, but it will also help boost your credit score. A big portion of your FICO® Score — 35% — is determined by your payment history, and 30% is determined by how much of your available credit you use.
Making regular debt payments on time will help you lower your debt obligations and improve your credit score at the same time.
Mortgage lenders want to see that your income is steady and your debts aren’t increasing. As you get closer to the time when you want to buy a house, you may want to avoid changing jobs, and you definitely don’t want to take on any new debt, like buying a car.
This is an obvious one, but save as much money as you can to put toward your down payment. Additionally, lenders may want to see that you’ll have enough money in your savings account to cover closing costs in addition to the down payment.
With some loans, you may be able to apply a monetary gift to the down payment from friends or family. Redfin said recently that nearly 40% of home buyers used a cash gift or inheritance to help them with their down payment.
You can’t control when mortgage rates drop (believe me, I would have if I could), but you can focus on the above to get yourself ready to pounce when they do.
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