5 Ways to Prepare Now for Mortgage Rate Drops

Mortgage Interest Rates are down – and they could fall further in the weeks and months ahead. With the latest inflation report showing that the rate fell again in July (the fourth consecutive month in which it has done so) and that it fell dramatically from The highest in 40 years In June 2022, the Federal Reserve is preparing to cut its key interest rate, currently frozen in a range of between 5.25% and 5.50%. On August 23, Federal Reserve Chairman Jerome Powell explicitly stated that the “the time has come” to act. But the time has also come for future home buyers to act too.

The home buying process can be long and complex, and it is likely to be complicated by a climate of cooling mortgage interest rates. With this in mind, buyers should start making strategic choices now so they are better prepared to take action when they finally find the home they want to purchase. Below, we detail five ways these buyers can begin to effectively prepare for mortgage rate declines now.

Start by seeing what mortgage interest rate you can qualify for here.

5 Ways to Prepare Now for Mortgage Rate Drops

Mortgage interest rates are down, on average, more than a percentage point from where they were in late 2023. But they are likely to fall further soon, especially if the Fed issues a series of interest rate cuts starting at its next meeting on September 17. Before that action, here are five effective ways borrowers can start preparing for the cuts now.

Shop for Lenders

While most mortgage lenders offer roughly the same rate, they’re not the same. And even a small difference in rates between lenders can add up to significant savings over the life of your loan. So start comparing lenders now to see which one is currently offering the best deal—and which ones appear to be. Once you’ve found a lender you’re comfortable with, you can begin the process of getting one step closer to locking in a mortgage rate once it’s reduced.

Start searching for mortgage lenders online today.

Improve your credit

It’s important to remember that the best interest rates and terms will be reserved for borrowers with the highest credit scores. Even the average interest rates you see on lender websites and online marketplaces are geared toward buyers with superior credit. If you’re not one of these types of borrowers, start taking steps to Improve your credit nowThere are several ways to do this, but it will take time for these actions to reflect on your score, so it is incumbent on you to act quickly.

Look for alternatives

Don’t get trapped into a traditional 30-year mortgage just because it’s a familiar option. In a changing rate environment, you should explore all alternatives. This includes 15-year mortgage (which comes with higher payments but lower interest rates and a condensed repayment period). But this also extends to variable rate mortgagesthe purchase of mortgage points and a combination of these options, depending on what your lender is willing to offer you. You might be surprised at how much you can ultimately lower your rate.

Calculate your budget

You may think you can afford to borrow a certain amount of money, but you need to be absolutely certain that you can afford it. So calculate your budget carefully now and use both current average mortgage interest rates and those that may be available in the fall to more accurately assess the costs. And don’t forget to factor in taxes, homeowners insurance and, possibly, Private Mortgage Insurance (PMI)if you do not wish to use the traditional 20% deposit.

Get pre-qualified

When you’re ready to make an offer on a home, the seller’s real estate agent will inevitably ask if you’ve been pre-qualified. And if you haven’t already, you could lose the home to a buyer who has already done so. Don’t take that risk. You can get pre-qualified for a large loan amount from any number of lenders. You don’t even have to use the one that provides the pre-qualification for your final purchase. But you’ll want to show sellers that you’re serious about buying, especially in a market where there are supposedly many buyers competing. A pre-qualification, while not perfect, can help you stand out a bit from the competition.

Learn more about how to get prequalified here now.

The essentials

Mortgage interest rates are falling, and buyers looking to take advantage of them need to do everything they can to ensure their chances of success. While every buyer’s financial situation is different, many would benefit from shopping around for lenders, improving their credit, and exploring alternatives to the traditional 30-year mortgage now. And if they budget today and work to get pre-qualified as soon as possible, the advantage they can gain now could be the difference between buying and losing their dream home in today’s ever-changing mortgage market.