3 mortgage questions buyers should ask themselves now

Mortgage interest rates plunged last week to their lowest level in two years. While they've risen slightly since, they're still more than a point lower compared to 2023. And with the Federal Reserve issuing its first rate cut since 2020 earlier this month, and the potential for other cuts high when they meet again in November and December, many homebuyers who have elected to stay on the sidelines may now be considering reentering the market. 

But the rate climate and real estate market from a few years ago has changed significantly. Mortgage interest rates are still more than double what they were in 2020 and 2021, for example. Rising home prices and limited inventory are also major concerns. To make a well-informed decision about acting now, then, prospective homebuyers should start contemplating the answers to some specific questions. Below, we'll break down three of them.

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3 mortgage questions buyers should ask themselves now

While every homebuyer's financial circumstances are different, many would benefit by having answers to the following questions now: 

Am I prepared to buy?

Homebuying isn't just something you decide to do overnight. There are multiple ways to prepare for what could be a months-long process (if not longer). So start by asking yourself if you're truly ready to buy right now. That means having enough money to make the conventional 20% down payment (or enough to pay for private mortgage insurance if you don't). It also means calculating your potential monthly costs, including homeowners insurance and taxes. 

And it extends to your credit profile. If your credit score isn't where lenders want it to be, then don't expect to be able to lock in today's new, lower rates. In short, ask yourself if you're prepared to buy and, if you're not, start taking the steps today to be able to do so.

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How much can I save by waiting?

If you've already determined that you're ready to buy, then move on to the next, arguably more difficult question to answer: How much can you save by waiting? 

This is a question not easily answered, as mortgage interest rates are affected by a wide range of economic factors. And they won't neatly correspond with predictable rate cuts. So, even if the Fed makes another 50 basis points worth of cuts this year, your mortgage rate offers may not fall by that exact amount. But that doesn't mean that you should forego buying altogether. 

Instead, start calculating what a mortgage will cost you at different, realistically available rates, both now and in the weeks and months ahead. Then weigh those potential savings against complications that could arise from a more robust market, including higher home prices. While you may be able to save a marginal amount by waiting for rates to fall further, that difference can easily be negated by higher home prices. So you'll want to tread carefully and take a measured approach.

Will interest rates rise again?

While no one knows exactly where interest rates are heading long-term, it helps buyers to contemplate the long-term possibility of them rising again. While rate cuts — not hikes — seem likely now, historically, today's interest rates are still on the low side. So waiting around for them to drop even further not only opens you up to dealing with higher rates in the future, but it also makes the possibility that you could lose out on your dream home more realistic. It's possible, if not likely, that today's rates may not move much off the range they're currently in.

The bottom line

A cooling rate climate is advantageous for borrowers no matter the type of loan but it can be particularly beneficial for homebuyers. Still, since a home purchase is the biggest one many Americans will make in their lifetimes, it's vital to take a nuanced and strategic approach. This extends to having the answers or, at a minimum, the approximate answers to the above questions. By thinking of these now, buyers will better positions themselves for success both in the short-term and over the life of any potential mortgage loan.