Mortgage Money Myths: Should You Wait for Interest Rates to Drop Before Buying?

The Smarter Mortgage Series

Helping homeowners make smarter financial decisions, one mortgage question at a time.

Every week someone tells me,

“Doug, we’re just going to wait until rates come down.”

My response usually surprises them.

I don’t know when rates will come down.

Neither does anyone else.

What I do know is there are things you cannot control and things you absolutely can control. The smartest homebuyers spend less time worrying about headlines and more time focusing on the decisions that put them in the strongest financial position.

Let’s look at both.

Things You Cannot Control

Mortgage Rates

Yes, mortgage rates are higher today than they were during the historic lows of 2020 and 2021. Those years were the exception, not the rule.

Many people ask me, “When will rates come back down?”

The honest answer is that no one knows for certain.

Several factors influence mortgage rates, and most of them are completely outside our control.

Inflation

Inflation has improved significantly from the highs we experienced after the pandemic, but inflation is not a one time event. Prices generally continue to rise over time, just at different speeds.

Today, inflation remains above the Federal Reserve’s long term target, which means controlling inflation continues to be one of the biggest economic priorities. As inflation improves, mortgage rates often have an opportunity to improve as well. When inflation remains stubbornly high, mortgage rates tend to remain elevated.

Global Events

Geopolitical events can also affect mortgage rates.

Earlier this year, many economists expected rates to gradually improve. Then the unexpected happened. Conflict in the Middle East created new uncertainty in the global economy, particularly surrounding energy prices and inflation.

Historically, periods of uncertainty have sometimes benefited the bond market. However, when rising oil prices and inflation become part of the equation, the relationship becomes much more complicated.

The Bond Market

Mortgage rates are largely driven by the bond market, particularly Mortgage Backed Securities.

Bond investors pay close attention to inflation reports, employment data, consumer spending, and the overall health of the economy.

These are important indicators, but they are not things any of us can control.

The Federal Reserve

The Federal Reserve influences short term interest rates, but mortgage rates respond much more directly to the bond market.

The Fed has also indicated a desire to provide less forward guidance than in previous years, allowing markets to react more naturally to incoming economic data.

While the Federal Reserve plays an important role in the economy, its decisions are only one piece of a much larger puzzle.

Homebuyer Competition

This is one area where today’s buyers may actually have an advantage.

Inventory has improved in many markets compared to the last few years. Sellers are often more willing to negotiate, offer concessions, or help buy down a buyer’s interest rate.

Seasonality also plays a role. Many families prefer to move before the school year begins, so as summer winds down, competition often becomes a little less intense.

Of course, the fully remodeled home with the oversized lot, a pool, no HOA, and a price below market value will probably still attract multiple offers.

For many buyers, however, today’s market offers more choices and stronger negotiating power than we have seen in quite some time.

Things You Can Control

While none of us control inflation, mortgage rates, or the bond market, there are many things you can control that may have an even bigger impact on your financial future.

Purchase Price

Shop within a budget that allows you to sleep well at night.

Work with a knowledgeable real estate agent who understands the local market and can provide comparable sales, market trends, and pricing guidance before you submit an offer.

A strong offer is not always the highest offer. Sometimes it is the cleanest offer, backed by a solid preapproval, realistic timelines, and an experienced team.

Down Payment

Many buyers assume they need the largest down payment possible.

Sometimes that is true. Sometimes it is not.

As a general rule, every additional $1,000 you put toward your down payment may lower your monthly mortgage payment by approximately $4 to $6, depending on your loan program and interest rate.

However, your down payment can also affect:

• Mortgage insurance

• Interest rate pricing

• Loan eligibility

• Cash reserves after closing

One strategy that often gets overlooked is paying off high interest debt instead of putting every available dollar toward your down payment.

For example, eliminating a $700 monthly car payment may improve your monthly cash flow far more than reducing your mortgage payment by only $100 to $150 per month.

Every situation is different. Look at your complete financial picture instead of focusing on just one number.

Loan Program

Not every buyer should choose a conventional loan.

Depending on your goals, an FHA loan, VA loan, USDA loan, or even an Adjustable Rate Mortgage may provide a more comfortable monthly payment or lower upfront costs.

The best loan program is the one that supports your long term financial goals, not necessarily the one with the lowest advertised interest rate.

Credit Score

Your credit score influences much more than whether you are approved.

It may affect:

Interest rate
Mortgage insurance
Closing costs
Loan options
Monthly payment

If improving your credit score is realistic within a reasonable amount of time, ask your lender if it could improve your financing options.

Sometimes a few simple changes can make a meaningful difference.

Seller Concessions

In today’s market, seller concessions can be one of the most valuable negotiating tools available.

Many buyers immediately ask for a lower purchase price.

In many cases, using those same dollars toward closing costs or buying down the interest rate may provide greater financial benefit.

Seller concessions may be used for:

Closing costs
Permanent rate buydowns
Temporary buydowns
Or a combination of all three

As mortgage expert Barry Habib often says, closing costs are money you will never get back.

If the seller is willing to help cover those expenses, it is worth considering before simply negotiating a lower sales price.

Temporary Buydowns

I am a big fan of temporary buydowns when they fit a buyer’s goals.

Instead of permanently buying down your interest rate, a temporary buydown lowers your payment during the first year or two of homeownership, when many families are adjusting to moving expenses, furnishing a home, or other major life changes.

Sometimes a temporary buydown makes more financial sense than a permanent buydown.

Sometimes using both strategies together creates the best solution.

Choosing the Right Home

Do not sacrifice everything you want in a home.

But do not become house poor either.

One piece of advice my wife has always shared is:

“You make your money on the purchase, not the sale.”

Buy a home with strong long term potential.

Consider resale value.

Think about future appreciation.

If you believe you may move in five to seven years, ask yourself whether this home could become a great rental property.

One more thought.

Do not buy a house simply because your current furniture fits perfectly.

Sometimes buying a better home in a better location with stronger long term value is worth replacing a couch or dining room table.

Buying When You Are Financially Ready

There is nothing wrong with waiting until you are financially ready.

Buying a home should feel exciting, not overwhelming.

If you feel pressured to make a decision, it may be time to reevaluate your team.

A good lender and a good real estate agent will educate you, answer your questions, and help you make informed decisions.

They should never pressure you into making one of the biggest financial decisions of your life.

As always, I am happy to review your options, compare strategies, or simply provide a second opinion.

The Common Theme

Every one of these strategies is something you can control.

You may not be able to control where mortgage rates go next month, but you can control how you prepare, how you shop, and the financial decisions you make along the way.

That is where smart homebuying begins.

Looking Ahead

One topic I hear from self employed borrowers all the time is whether they should write off every possible business expense on their tax return.

The answer is not always simple.

Lower taxable income may reduce your tax bill today, but it can also reduce the income a mortgage lender is able to use when qualifying you for a home loan.

There are also alternatives that may help in certain situations, such as bank statement loan programs and other non traditional financing options.

I am not a CPA, and I would never recommend how someone should prepare their taxes.

In fact, I think this deserves its own article.

My plan is to sit down with a CPA and discuss the relationship between tax planning, homeownership, mortgage qualification, and long term financial goals. I believe hearing both perspectives will provide homeowners and business owners with valuable information before they make important financial decisions.

Stay tuned. I think it will be one of the most helpful articles in The Smarter Mortgage Series.