If you’re thinking about purchasing a home but you’re not really happy about the current mortgage rates, you’re not alone. According to Freddie Mac, home sales have slowed due to the 30-year fixed mortgage rate staying above 6.5% since May.
Since the end of 2021, mortgage rates have made quite a leap. For example 30-year fixed-rate mortgages have increased from 3% to over 7.5% and 15-year fixed-rate mortgages have jumped from 2.3% to more than 6.7%. Even so, Dave Ramsey says the increase in mortgage rates shouldn’t deter you from shopping from a home.
Why You Shouldn’t Wait for Mortgage Rates To Go Down
According to Ramsey’s blog, even though mortgage interest rates are high right now, if you’re financially ready to do so, you should go ahead and buy a house.
“Mortgage interest rates are high right now,” Ramsey said, “but we don’t know for sure whether they’ll go back down anytime soon — they may even keep going up if the Federal Reserve decides to raise the federal funds rate again.”
Ramsey also wrote that, no matter what, housing prices will keep increasing, as is normal, and the best course of action is to buy now and lock in your home’s price. Once interest rates decrease in a year or two, he wrote, you can refinance to a lower rate.
Additionally, Ramsey pointed out that because interest rates are high right now, fewer people are buying homes, which means you won’t have as much competition when you make offers.
What If You Wait Until Mortgage Rates Go Down?
Matt Ricci, a home loan specialist with national lender Churchill Mortgage, said it’s reasonable to expect lower interest rates in the next 18-24 months.
“The United States will be in an election cycle,” he said, “so the economic climate will most likely favor lower interest rates.”
However, don’t get too excited. According to Ramsey, the drop in interest rates likely won’t be enough to make a significant difference.
“But even if mortgage rates do go down in 2024, odds are the drop won’t be drastic — it’s not like rates are going to quickly return to the 2% to 3% range we saw at the end of 2021,” Ramsey wrote. “The bottom’s not about to fall out here.
“For example, even though the National Association of Realtors believes rates will go down in 2024, they’re only predicting a half-percent drop — from 6.5% to 6% — by the end of the year. A lower rate is definitely nice, but that small of a drop isn’t worth waiting around for.”
Besides that, there are other issues to consider if you wait until mortgage rates decrease.
“While lower interest rates would certainly favor additional inventory,” Ricci said, “the ratio of renters in the market compared to homeowners — in combination with a major gap in new construction — will still favor a larger demand for housing than supply of housing for sale.”
Ricci also said that when rates come down, home prices could increase. “So, while you certainly would have a lower rate on a mortgage, you would also be spending and borrowing more.”
Are You Financially Ready To Buy a House?
Before you start the homebuying process, Ramsey recommends you check the following four boxes. If you can’t check all four, he recommends waiting until you can.
- You don’t have any consumer debt. This includes student loans, credit card payments or car notes. This will ensure that you have more room in your budget.
- You have at 3-6 months’ worth of typical expenses saved. Unexpected expenses happen and having a solid emergency fund will allow you to pay for them without using your credit cards or dipping into your retirement accounts.
- You’ve saved a substantial down payment. If you’re a first-time homebuyer, you’ll need at least 5% to 10%, Ramsey wrote. Additionally, putting 20% down can allow you to forgo mandatory private mortgage insurance, which could save you hundreds of dollars per month.
- You can afford the house payment. Your house payment, including principal, interest, homeowners insurance and HOA fees should not equal more than 25% of your take-home pay, according to Ramsey. If it is, you risk not being able to meet your other financial goals.
Ensuring you are financially ready to buy a house will help you avoid your home being a financial burden that you might regret.
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