Forget Mortgage Rates: This Is Way More Important to Home Buyers

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The average mortgage rate today for a 30-year loan is 6.47%. Considering that the average rate was over 7.2% back in May, that's an improvement.

But a 6.47% mortgage also isn't exactly competitive. And it's hard to wrap your head around that sort of rate when just a few years ago, buyers were signing 30-year loans at 3% or less.

But if you're looking to buy a home, your mortgage rate isn't what you should be focusing on most. There's a much more important number to look at.

Is your home's purchase price affordable?

The mortgage rate you start off paying does not have to be the mortgage rate you pay forever. That's because there's always the possibility of refinancing a mortgage once rates start to drop.

And to be clear, rates are likely to start coming down later this year and into 2025. The Federal Reserve is expected to gradually lower its benchmark interest rate in response to cooling inflation. And while the Fed doesn't set mortgage rates -- that's something mortgage lenders do -- its benchmark interest rate commonly influences borrowing rates across the board.

On the other hand, the price you pay for your home is set in stone. It's possible to refinance a 6.47% mortgage into a loan with an interest rate of 4.36%. But you can't turn a $500,000 house into a $300,000 house.

To be clear, it's possible for the value of a $500,000 to decline to $300,000 during a housing market crash. But if you buy a home for $500,000, that's the sum you have to cover one way or another. And any mortgage refinance you do will be based on the amount you owe on your loan as it relates to your original purchase price.

So it's really important to make sure you can afford the home price you're looking at. If you can't, then you're better off waiting to buy until home prices come down.

The good news is that falling mortgage rates should lead to an uptick in housing inventory, as sellers may be more motivated to list their homes when they're not looking at such expensive mortgage rates for replacement homes. So all told, there may be relief in sight with regard to home prices, too, in the coming months and year ahead.

An easy way to see if you can afford to buy a home

If you're not sure whether you can afford to buy a home today, all you need to do is use a mortgage calculator to see what monthly payment you're looking at based on your home's purchase price, your down payment, and the mortgage rate you're likely to qualify for.

If that number, combined with your other expected housing costs, like property taxes and insurance, is at or below 30% of your take-home pay, then you're in a pretty good position to buy. But if you're looking at spending more than 30% of your take-home pay on housing, then it's generally best to wait.

Either way, though, try not to let today's mortgage rates stop you from buying if you can afford a home otherwise. Say you're looking at a 6.47% mortgage. If you can afford your monthly payments based on that rate, there's really no problem. And things can only get better from there once you're able to refinance to a lower rate. So even though it's not fun to get stuck with a higher mortgage rate, know that you're not necessarily stuck with it permanently.

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