Should I Wait for Rates to Drop Before Buying in Cleveland?

This is probably the question I hear most from first-time buyers this fall: should I wait for mortgage rates to come down before I buy? Here's an honest answer, with real numbers instead of predictions.

Where rates are right now

Freddie Mac's weekly survey put the average 30-year fixed rate at 7.24% on October 29, down from 7.32% the week before and 7.40% in mid-October. A year ago it was 6.17%.

Nobody knows where rates go next. I don't, and neither does anyone who sounds certain about it. So the plan has to work without knowing.

What a one-point drop actually does

Take a $250,000 loan. At 7.24%, principal and interest come to about $1,704 a month. At 6.24%, it's about $1,538. That's roughly $166 a month.

Look at it the other way. A $1,700 monthly payment supports about $249,000 of loan at 7.24% and about $276,000 at 6.24%. A one-point drop gives you roughly $27,000 more buying power. That sounds like great news, and it is, for every other buyer too.

The part most people miss

When rates fall, every buyer's budget goes up at the same time. I've seen it happen before: lower rates bring more buyers out, and multiple offers come right back with them, often within a few weeks of the drop. In a bidding situation, I tell buyers to have their lender translate price into monthly payment, because the difference between winning and losing is often only $25 to $75 a month.

So waiting can mean trading a higher rate for a higher price, fewer choices and more competition. Sometimes that trade still makes sense. It's just not the free win it looks like.

It also helps to compare apples to apples. If you borrow $200,000 today and rates drop a full point next year, you might save around $130 a month by refinancing, minus the cost to refinance. If instead you wait and prices rise even a few percent while more buyers come back in, you could pay more for the same house and still compete in multiple offers. Neither path is guaranteed. That's why I'd rather you pick the house and payment that work today than try to time the market.

About refinancing later

You'll hear that you can buy now and refinance when rates drop. Maybe. Refinancing has its own closing costs, it depends on rates actually falling, and you have to qualify again when the time comes. I'd never want a first-time buyer to take on a payment they can only afford if a refinance happens. Buy a payment that works at today's rate. If rates fall later, that's a bonus.

When waiting does make sense

Waiting to get ready is different from waiting for rates. If you'd have almost no savings left after closing, if your credit needs work, or if your job situation is uncertain, take the time to fix those first. Those reasons are about you, not about the market, and they're good reasons.

A few months spent paying down a credit card, building a cushion for repairs or getting a clearer picture of your income can do more for you than a quarter-point move in rates. You'll walk into your first home with less stress and more options.

What to do now, either way

Get a fully documented pre-approval, not just a quick prequalification. In October we had Amber Gowdy, CEO of Liberty Home Mortgage, and Michelle Massucci, its COO, on our Tuesday training to talk about the difference between a pre-approval and a final loan approval. It's worth asking your lender exactly what's still left to verify on your file.

Then set a payment ceiling you're comfortable with, including taxes and insurance. In Cleveland, look up the actual tax bill on the county site, and if a house has a tax abatement, ask when it ends and what the bill will be afterward. A first-year payment that jumps when the abatement expires isn't the payment you budgeted for.

My take

If you find the right house at a payment you can live with today, I wouldn't pass on it hoping rates fall. If you're not ready yet, use the time to get ready. Either way, decide on the payment first and let the rate be one input, not the whole decision. The right house at the right payment is worth more than the perfect rate on the wrong house.

These figures are national survey averages, not a quote. Your rate depends on your credit, loan type and down payment, so confirm everything with a lender.

If you're a first-time buyer in Cleveland and want help running your own numbers, schedule a time with me or someone on our team at 21mike.com.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
Google Business Profile: https://g.page/r/CSQoYzel0Z68EAE
+1 (216) 373-7727