5 critical things homebuyers should do this August
Mortgage interest rates hit their highest point since 2000 just last August. Thanks to inflation and a series of hikes to the federal funds rate, mortgages became too costly for millions of Americans. But in less than 12 months the rate climate — and the mortgage environment, in particular — has changed significantly.
Thanks to a cooling inflation rate and strong talk of multiple cuts to the federal funds rate, mortgage rates have dropped in recent weeks. Now sitting at 6.80% for a 30-year mortgage, rates have dropped significantly from when they hovered close to 8% last November. And that drop has come without a formal rate adjustment from the Federal Reserve. If they do adjust the federal funds rate in September, as many are predicting, mortgages could become even cheaper.
Understanding the factors at play, then, homebuyers should strongly consider making some critical but important moves this August, ahead of what could be significant rate changes in September and later in 2024. Below, we'll break down five critical things homebuyers should do this month.
Start by seeing what mortgage rate you could qualify for here now.
5 critical things homebuyers should do this August
Homebuyers shouldn't just be attending open houses and searching online for a new property. They should also do the following critical things this month:
Shop around
While most lenders will offer approximately the same interest rate as one another, approximate isn't the same as exact. And when buying a home, with the average one worth $398,000 right now, it's critical to find the lowest rate possible. Homebuyers will improve their chances of doing so by shopping around for lenders offering the best rates and terms. And that may mean using an online bank or one different from the one you currently do your banking with. That said, the change could lead to thousands of dollars saved over the lifespan of your loan, so it's worth searching for.
Start shopping for mortgages with an online marketplace today.
Boost their credit score
If you do find a low rate with a specific lender, it's important to remember that the rate will only be yours if you apply with a high credit score and a clean credit profile. If you don't have both, you're unlikely to get that great rate. So do all you can to boost your credit score now. That means refraining from adding to your debt, paying down your existing debts and checking your credit report for any errors or inaccuracies.
Understand all options
Make sure to understand all your prospective options. For example, some lenders may list a low rate with "points" already accounted for, which means you'll need to pay a fee to secure that better rate. That could be something worth pursuing, but you should know how mortgage points work beforehand. Similarly, an adjustable-rate mortgage may be attractive in today's evolving rate climate. But do your research in advance so that you can more accurately weigh the pros and cons that come with these options.
Be prepared to lock in a rate
Mortgage interest rates are already down around a full percentage point from late 2023, so for some homebuyers, it makes sense to lock in today's low rate now. While that may seem counterintuitive in the face of mortgage rate cuts to come, it still helps for budgeting purposes now.
By locking in today's rates or a lower one to come in the days and weeks ahead, buyers can ensure that their mortgage payments won't rise any higher. And, if rates fall before closing, they can unlock their rate and re-lock the new, lower one. Should rates fall dramatically post-closing, they can look to refinance. But don't let the temptation of a (potential) slightly lower rate in September override a low rate lock now.
See how low of a mortgage rate you can lock in here now.
Mark their calendar
Mortgage rates change daily, but there are dates on the calendar now that buyers should be aware of in which rates could more dramatically be altered. They could adjust on August 14 and the day after, for example, when the next inflation report is released by the Bureau of Labor Statistics and the market reacts. And they could be affected on September 6, when the unemployment report for August is released.
And those dates are both prior to the next scheduled Federal Reserve meeting set for September 17 and September 18. It's vital, then, for homebuyers to mark their calendars for these dates now so that they're prepared for any rate changes that could result around those times.
The bottom line
An evolution in mortgage interest rates means homebuyers should start working toward getting the lowest rate now. This is a multi-faceted process that includes (but is not limited to) shopping for lenders, improving your credit score, understanding all of your mortgage type options, locking in a rate and being cognizant of calendar dates that can further shake up the mortgage rate climate. By taking these steps this August, homebuyers will improve their chances of financial success both this month and in the months and years to come.
