There’s a reason 2024 has been such a tough year to buy a home. Not only have home prices been elevated due to a glaring lack of real estate inventory, but mortgage rates have been elevated as well. That combination has been brutal for buyers.
But in the coming months, you may find that it’s less expensive to sign a mortgage. Here’s why.
The Fed’s rate cuts could trickle down to mortgage costs
The Federal Reserve raised its benchmark interest rate numerous times in 2022 and 2023 in an effort to slow inflation. And the good news is that it worked; living costs aren’t rising at such a rapid pace. But the Fed’s rate hikes had a negative impact on mortgage borrowers — and borrowers in general.
Though the Fed doesn’t set consumer loan rates, when it raises its benchmark interest rate, loans tend to get more expensive. This extends to mortgages. But in mid-September, the Fed lowered its benchmark interest rate by half a percentage point. And that rate cut is likely to be the first of several.
What this means is that in the coming months, mortgage rates could fall from where they are today. In fact, the average 30-year mortgage rate as of this writing is 6.09%, per Freddie Mac. That’s not an inexpensive rate, but it’s better than the 7% mortgages borrowers were looking at not so long ago.
Plus, at this point, there’s reason to believe that mortgage rates will dip below 6% for 30-year loans by the end of the year. And if this trend continues into 2025, there may be a lot of relief for buyers in the new year.
How to score the most affordable mortgage rate
The lower an interest rate you snag on a mortgage, the lower your monthly payments will be. Sitting tight a few more months and waiting for additional rate cuts from the Fed is a smart move. Follow-up rate cuts are likely to drive mortgage rates downward even more.
You can also take some active steps to save money on a mortgage. First, work on boosting your credit score. The higher it is, the lower the mortgage rate you’re likely to qualify for. You can raise your credit score by being timely with bill payments and reducing the amount of money you owe on your credit cards.
It’s also a good idea to check your credit report for errors. You’re entitled to a free copy from each of the three credit bureaus every week. Correcting a mistake could give your credit score a lift if the error is one that reflects poorly on you, like a late payment.
Also, even if mortgage rates fall across the board, it’s important to shop around with different lenders once you’re closer to being ready to buy a home. Comparing offers is a great way to eke out added savings.
But when you do your rate shopping, pay attention to closing costs, which are the fees you pay to put a mortgage in place. If one lender offers you a lower rate with much higher closing costs, it’s not necessarily the mortgage you want.
If you’ve been struggling to buy a home, you should know that things could get better soon. But don’t just sit back and wait for mortgage rates to fall. Instead, take steps to put yourself in the best possible position to score an excellent deal.