Should I Buy a Home Now or Wait for Lower Interest Rates?

My personal opinion on this has always been buy when can, do not wait for improved market conditions. There are opportunity costs to waiting to purchase a home and I will get to them in a bit, but first let’s discuss the current (end of March 2024) interest rates:

Are current mortgage interest rates high?

The answer is both: yes and no, it is all comparative and a matter of perspective. Freddie Mac  — has been keeping track of mortgage loan interest rates since 1971. The average 30-year fixed-rate mortgage loan rate between April 1971 and March 2024 is at 7.74%. So technically, current rates (again, I am writing this at the end of March 2024) are below the 5-decade average. Interest rates reached their peak in 1981, with the average rate of 16.63% and the highest rate of 18.63%. The last decade, however, has been very different. We have gotten spoiled seeing rates around 4%, with the historical average low of 2.96% in 2021 (lowest rate reached 2.65%). So, the current rates are high in comparison to the rates during the last decade, but not very high if we consider the last 50 years.

Let’s jump back to the question at hand: should I buy a home now or wait for lower interest rates?

Deciding whether to buy a home now or to wait for lower interest rates depends on a variety of factors, including your financial situation, the current real estate market conditions, and your long-term plans.

Lower Mortgage Interest Rates

Consider your personal financial situation

Are you in a position to purchase a home? Assessing your financial situation before buying a home is crucial to ensure you can afford the purchase and manage homeownership expenses effectively.

  1. Assess Your Long-Term Financial Goals: Consider how homeownership fits into your long-term financial goals, such as retirement savings, education funds, and other investments. Ensure that purchasing a home aligns with your overall financial plan and will not jeopardize your financial stability in the future.
  2. Review Your Income and Expenses: Start by determining your monthly income from all sources, including salary, bonuses, investments, and any other sources of revenue. Then, list all your monthly expenses, including housing costs, utilities, groceries, transportation, debts, and discretionary spending. This will give you a clear picture of your cash flow and how much you can afford to allocate towards a mortgage payment.
  3. Calculate Your Debt-to-Income Ratio (DTI): Your DTI ratio compares your monthly debt payments to your gross monthly income. Lenders use this ratio to assess your ability to manage additional debt, such as a mortgage. Aim for a DTI ratio below 43% to increase your chances of mortgage approval. Calculate your DTI by dividing your total monthly debt payments (including your future housing expense) by your gross monthly income, then multiply by 100 to get a percentage.
  4. Review Your Credit Report: Obtain a copy of your credit report from major credit bureaus (Equifax, Experian, TransUnion) and review it for accuracy. Your credit score plays a significant role in mortgage approval and the interest rate you will qualify for. Address any errors on your report and take steps to improve your credit score if necessary, such as paying down debt and making payments on time.
  5. Determine Your Down Payment: Assess how much money you have saved for a down payment. A larger down payment typically results in lower monthly mortgage payments and may help you secure a better interest rate.
  6. Consider Additional Costs: Factor in additional costs associated with homeownership, such as property taxes, homeowner’s insurance, maintenance, repairs, and potential homeowner’s association (HOA) fees. Make sure you have a sufficient emergency fund to cover unexpected expenses that may arise after purchasing a home.
  7. Get Pre-Approved for a Mortgage: Obtain pre-approval from a mortgage lender to accurately determine how much you can borrow and what interest rate you qualify for based on your financial profile.

Evaluate Market Conditions

Evaluating residential market conditions is essential when considering a home purchase as it can influence factors such as pricing, availability of homes, and future property values. Here is how to evaluate residential market conditions effectively:

  • Research Local Market Trends: Start by researching local market trends in the area where you are considering buying a home. Look at recent sales data, including median home prices, average days on market, and the number of homes sold. Websites like Zillow, Redfin, and local real estate association websites often provide access to this information.
  • Inventory Levels: Assess the inventory levels in the housing market. Low inventory typically indicates a seller’s market, where demand exceeds supply, potentially leading to higher prices and increased competition among buyers. Conversely, high inventory suggests a buyer’s market, where there may be more negotiating power for buyers due to abundant supply.

There are additional factors to consider when evaluating a local real estate market, such as employment and economic indicators and future development plans. By thoroughly evaluating your residential market conditions, you can make a more informed decision when purchasing a home and ensure that you are getting the best value for your investment.

Opportunity cost of waiting to buy a home

The opportunity cost of waiting for lower interest rates to buy a home refers to the potential benefits or gains that you forego by delaying your purchase decision. Here are some key points to consider regarding the opportunity cost of waiting:

  1. Higher Interest Rates: There is no guarantee that rates will decrease. While waiting for rates to drop further, you might miss out on the opportunity to lock in a favorable rate and get stuck with a higher rate instead. Even a small increase in interest rates can significantly impact your monthly mortgage payments and the total cost of homeownership over the life of the loan.
  2. Home Equity: Every month you delay buying a home is another month you are not building equity. Home equity is the value of your home minus any outstanding mortgage debt. By purchasing a home sooner rather than later, you start building equity and potentially benefiting from property appreciation.
  3. Rising Prices: In many real estate markets, home prices tend to appreciate over time. By waiting to buy a home, you may end up paying more for the same property in the future due to price increases. This means that the longer you wait, the more expensive it may become to purchase a comparable home.
  4. Tax Benefits: Homeownership offers various tax benefits, including deductions for mortgage interest, property taxes, and certain closing costs. By delaying your home purchase, you delay the potential tax advantages associated with homeownership, which could impact your overall tax liability.
  5. Quality of Life: Owning a home can provide stability, security, and a sense of pride. Delaying homeownership means postponing these benefits, such as having control over your living space, the ability to make improvements, and the freedom to customize your home to suit your preferences.
  6. Inflation and Cost of Living: Over time, inflation can erode the purchasing power of your savings. By delaying your home purchase, you may find that the cost of living, including housing costs, continues to rise, making it more challenging to afford a home in the future.

Opportunity Cost of Waiting to Buy a Home

Refinance later

If you purchase your home and interest rates drop, you can look at refinancing your mortgage loan. Refinancing involves replacing your current mortgage with a new one, typically to obtain a lower interest rate, reduce monthly payments, or change other loan terms. Here are some key points to consider:

  • Costs: Consider the costs associated with refinancing, such as closing costs, appraisal fees, and application fees. These expenses can vary depending on the lender and your specific circumstances. Calculate the breakeven point between monthly savings and loan costs to make sure that paying refinancing costs is financially beneficial.
  • Creditworthiness: Your ability to refinance at a lower rate will depend on your credit score and financial situation at the time of refinancing. Maintaining a good credit score and stable financial standing can improve your chances of qualifying for the best refinancing terms.
  • Loan-to-Value Ratio: Lenders consider the loan-to-value (LTV) ratio when approving refinancing applications. If the value of your home has increased since you purchased it or if you have paid down a significant portion of your mortgage principal, you may have a lower LTV ratio, which could make it easier and more beneficial to refinance.

Bottom Line

Evaluate your financial situation and long-term goals and buy a home when you are emotionally and financially ready. Do not wait for the market to improve: lower interest rates and lower home prices may not appear for a long time (or not at all), but waiting can result in significant opportunity costs, such as benefits of immediate homeownership, building equity and enjoying tax advantages. Buy a home when you are ready and start building equity and enjoying your life. If rates drop in the future, you can refinance your mortgage loan into a lower rate (as long as the numbers make sense). Please reach out to me to discuss your home purchase readiness and plans at 312-296-4175 or email me at I lend in all 50 states and I am never too busy for your referrals!