Mortgage rates are still falling. Here are 5 big moves to make now

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The past couple of years have been tough for homebuyers. Just a few years ago, it was easy to find a mortgage loan with a 3% (or lower) rate, but as buyers rushed to take advantage of the cheap borrowing environment, it fueled an uptick in demand and drove up home prices . As the mortgage rate environment shifted post-pandemic, mortgage rates climbed , significantly reducing affordability and pushing many prospective buyers to the sidelines.

It appears there's finally a glimmer of hope on the horizon, though. In recent weeks, mortgage rates have shown a promising downward trend. Right now, the average mortgage rate is below the 7% threshold, with 15-year mortgages averaging 6.41% and 30-year mortgages averaging 6.92% (as of July 15, 2024). This offers a welcome reprieve for potential homebuyers, even in today's tight housing market, where inventory remains limited .

But while this shift in the mortgage landscape is positive news, navigating the homebuying process in the current market still requires careful planning and strategic moves.

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Mortgage rates are still falling. Here are 5 big moves to make now

For those looking to take advantage of the cooling mortgage rate environment, here are some key steps to consider:

Get pre-approved for a mortgage loan

One of the most crucial steps to take in today's competitive housing market is to get preapproved for a mortgage loan . This process involves a lender reviewing your financial information, including income, assets and credit history , to determine how much they're willing to lend you. A pre-approval letter not only gives you a clear idea of your budget but also demonstrates to sellers that you're a serious and qualified buyer.

In a market where multiple offers are still common, having a preapproval can set you apart from other potential buyers. It shows sellers that you've already taken steps to secure financing, which can make your offer more attractive. And the preapproval process can help you identify and address any potential issues with your credit or financial situation before making offers.

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Lock in the best rate you can find

With mortgage rates on a downward trend, this is an opportune time to lock in a favorable rate . A rate lock guarantees that the interest rate quoted by your lender will remain available to you for a specified period, which typically spans from 30 to 60 days. This can protect you from potential rate increases while you complete the homebuying process.

But don't just lock in the first rate you're offered. Shopping around and comparing offers from multiple lenders is crucial during the process. And, don't hesitate to negotiate with lenders, as even a small difference in your interest rate can translate to significant savings over the life of your loan.

Consider buying points to lower your rate further

If you have some extra cash on hand and want to ensure that you're getting the best mortgage rate possible, buying mortgage points could be a smart move in the current environment. Mortgage points, also known as discount points, are essentially prepaid interest that you can purchase upfront to lower your interest rate for the life of the loan. While it can vary, each point typically costs 1% of your loan amount and can lower your rate by about 0.25%.

Rates are still relatively high by historical standards, so buying points could provide substantial long-term savings if you plan to stay in the home for an extended period. However, it's important to calculate the break-even point to ensure this strategy makes financial sense for your situation.

Act fast on desirable properties

While the cooling of mortgage rates is a positive development, it's important to remember that the housing market remains competitive due to limited inventory in most markets. And, as rates continue to drop, more buyers who were previously priced out of the market may re-enter, potentially intensifying competition for available homes.

If you find a property that meets your needs and fits your budget, be prepared to act quickly. Have your finances in order, your preapproval in hand and be ready to make a competitive offer. That way, you can set yourself up for success.

Explore alternative loan options

While conventional 30-year fixed-rate mortgages are the most common, don't overlook other loan options that might be more suitable for your situation. For example, adjustable-rate mortgages (ARMs) typically offer lower initial rates than fixed-rate mortgages. And, in a falling rate environment, an ARM could potentially save you money in the short term, with the option to refinance to a fixed-rate mortgage if rates continue to decline.

The bottom line

As mortgage rates continue to cool, it offers a window of opportunity for prospective homebuyers who have been waiting on the sidelines. By taking proactive steps such as securing a preapproval, locking in competitive rates, considering points purchases, acting decisively on desirable properties and exploring various loan options, you may be able to position yourself for success in today's evolving housing market. While challenges remain, particularly in terms of inventory and overall affordability, the improving rate environment could make it easier to turn your homeownership dreams into reality.