Experts Are Urging Homebuyers to Do This Before Locking In a Mortgage Rate

If you’ve been thinking about buying a home, or you’re discussing refinancing your home, you probably have your sight firmly focused on one thing: mortgage rates. That’s certainly fair, since mortgage rates have been at the forefront of the news for the past several years. After reaching record lows during the pandemic era, mortgage rates soared a couple of years ago, and they’ve yet to return to normal levels.

While many people assume that nothing matters more than location when it comes to real estate, the fact of the matter is that being strategic involves more than choosing where you’re going to live.

Some of the most trusted experts in the real estate industry have put together some key pieces of advice for homebuyers in today’s market. Before you start looking at homes that you’ve bookmarked on your favorite real estate app, take some time to look at the advice that some of the most trusted names in real estate have for potential homebuyers.

Be Informed About Fed Meetings and Tariffs

Most people who are thinking about buying a house in the near future focus heavily on mortgage rates. While they can fluctuate slightly from one day to the next, there are other factors that you need to monitor. According to Jeff Taylor, who serves as a board member for the Mortgage Bankers Association,

Mortgage rates are likely to trade near their current 7% range through the June 18 FOMC announcement because the Fed is likely to continue waiting for more data.

Being aware of the moves being made by the Federal Reserve’s Federal Open Market Committee can give you some insight into what the next few months are going to look like. While most people don’t want to spend hours watching these meetings, which usually contain a lot of verbiage that the average person cannot understand, you can find reports on these meetings within hours of them being adjourned. These meetings typically contain lengthy discussions about inflation rates and how the Fed is going to respond to them.

In addition to monitoring what the Fed is doing, you also need to keep up with news about tariffs. Undoubtedly, you’ve heard a great deal of debate about the topic over the last several months. Existing homes are obviously not impacted directly by tariffs, but the economy as a whole will certainly face some implications. Additionally, tariffs have the potential to impact the materials that are used to build homes, which leads to a price increase on new constructions. If people are less likely to have a new home constructed, they’re less likely to sell their current home, which will only further exacerbate the inventory shortage.

Knowing what’s happening with the economy allows you to be more informed when buying a home. Remember, the primary goal when buying a home is not to make any decisions based on panic. When you take a more strategic approach, you can be proactive instead of reactive, which sets you up to get the best deal possible.

Don’t Be Afraid to Negotiate

The real estate market is not as active as it was only five years ago. With this in mind, lots of sellers and lenders are more open to negotiating than they were in the not-so-distant past. Some lenders may be willing to pay for discount points, which reduce your interest rate for the life of the loan. Sellers and lenders may also be willing to offer some other concessions that can help you save in the long run.

According to Jeff Taylor,

In general, it's better to ask for a rate buy-down than a reduction in the selling price. Over a 30-year term, the rate buydown offers greater monthly savings compared to the price reduction.

Talk to your real estate agent about negotiating a buy-down or some concessions with the seller. If someone has had their home listed for over a year, they may be more open to some concessions than they were a few months ago. While some homes sit on the market for an extended period due to being overpriced, others are simply victims of the market.

Studies show that buyers are more open to negotiating because the market is shifting toward a more buyer-friendly position. While the move is slow, the data shows that it’s happening. If you’re in the market for a new home, remember that you won’t get any concessions or savings that you don’t ask for.

Be Strategic When Using Buydowns

Most real estate experts agree that mortgage rates are going to come down at some point in 2025. While we will likely never see the sub-2% rates that were so prevalent in 2020 and 2021, the fact remains that rates are going to fall out of the 7% range at some point. However, experts agree that the rates won’t be “dramatic.”

According to Fannie Mae, the average 30-year mortgage rate will likely fall to somewhere around 6.1% by the end of 2025. The Mortgage Bankers Association forecasts a fall to around 6.6%, which is only 0.29% lower than current rates.

With most of the major players in the industry agreeing that a drop is coming, it creates an opportunity for you to use a buydown option. Of course, if you want to take advantage of lower rates, you can certainly wait for them to drop, but that’s not always an option. That’s why the strategic use of mortgage buydowns is an important tool to have at your disposal.

According to Kevin Watson, a senior home loan specialist with Churchill Mortgage, buyers shouldn’t wait for rates to drop. Watson says

I recommend negotiating a temporary buydown for a couple years as we let this instability settle. Then, if and when rates drop, you can refinance.

As home prices continue to rise, it can be argued that it’s best to act quickly. Experts agree that when rates drop, prices may increase even more. This leaves you in a position to choose between paying more in interest rates or paying more in principle. If you find a home that you love, and you’re not in a position to wait, you may be better served by buying the home now and refinancing it later on.

Be Careful When Refinancing

Mortgage rates don’t only impact those who are planning to buy a home. If you’re happy with your house but not your mortgage payment, you may be thinking of refinancing. According to Realtor.com, 82% of homeowners currently have a mortgage rate below 6%, which is lower than the rates are, and is likely to be lower than they will be at the end of this year. Since most people refinance their mortgage in order to save on their monthly mortgage costs, refinancing right now probably won’t help you much.

If you’re thinking of refinancing your home to gain access to some cash, pay off other high-interest debts, or make some improvements to your property, it’s not a terrible idea. However, it should be done strategically. Not only should you calculate the costs yourself, but it’s also a good idea to work with a mortgage lender to determine if refinancing is the right move for you today.

If you plan on refinancing to pay off high-interest debts (like credit cards), you’ll want to commit to changing your spending habits. Refinancing your home at a higher interest rate to pay off credit cards can be a good idea, but it only works if you avoid running up debt on those cards again.

Depending on how long you’ve lived in your home, refinancing your home to get a shorter mortgage term can also be a viable option. Ultimately, you need to determine what route is best for your short-term and long-term financial goals.

Get Preapproved, Not Just Prequalified

Many homebuyers are shocked to find out that getting prequalified is not the same thing as getting preapproved. When you have your initial meeting with a mortgage lender, they’ll probably offer you a prequalified report. This report allows you to get some insight into how much money you’ll probably be allowed to borrow, and what your mortgage rate will be based on current market rates, your credit score, your income, and more.

However, when it comes time to get preapproved, you may not receive the same information. This is because the preapproval process is much more extensive than the prequalification process.

With this in mind, apply for preapproval if you have reason to believe that you’re going to make a decision soon. Most preapprovals are good for 90 days, so you have some time to start the process.

By getting preapproved instead of prequalified, you can put yourself in a position to make a move on a new home or refinance sooner. Since rates have the tendency to fluctuate from one day to the next, you don’t want to wait any longer than necessary when you find the right opportunity.

The Return of Adjustable-Rate Mortgages

Fixed-rate mortgages (FRMs) have long been popular because of the stability that they offer. However, adjustable-rate mortgages (ARMs) are regaining popularity, especially in high-cost areas. These adjustable mortgages generally allow you to pay the same rate for a fixed period of either five, seven, or 10 years, before adjusting according to current rates at the end of that term.

Experts agree that ARMs can be useful if you’re confident that you will either sell or refinance your home before the rate adjusts. While that’s a risky proposition, the fact remains that you can use this tool to improve your financial status. However, they’re not for the faint of heart. If you get stuck with your home after rates adjust, you may notice a drastic increase in your monthly mortgage payment.

Knowledge is Power

Whether you’re buying a new home or getting ready to refinance, you need to be informed about what’s happening in the market today and what’s likely to happen in the future. By creating a plan that meets your current needs while also considering your long-term goals, you can set yourself up to succeed.

In years past, people could buy homes or refinance their mortgages with little thought. Unfortunately, that’s not the case today, and it probably won’t be the case in the foreseeable future. However, you can apply the advice from the experts and reap the benefits.