The past couple of years have been tough for homebuyers. A few years ago, mortgage rates were as low as 3%, which drove up demand and home prices. Post-pandemic, rates climbed significantly, pushing many buyers to the sidelines. However, there's hope on the horizon. Recently, mortgage rates have shown a promising downward trend, with 15-year mortgages averaging 6.41% and 30-year mortgages at 6.92% as of July 15, 2024. This offers a reprieve for potential buyers even in a tight housing market with limited inventory.

Here are five strategic moves to make in this favorable mortgage environment:

1. Get Pre-Approved for a Mortgage Loan

In today’s competitive housing market, getting pre-approved is crucial. This involves a lender reviewing your financial information to determine how much they’re willing to lend you. A pre-approval letter gives you a clear budget and shows sellers you’re a serious buyer, setting you apart in a multiple-offer scenario.

2. Lock in the Best Rate You Can Find

With rates on a downward trend, locking in a favorable rate is key. A rate lock ensures the interest rate quoted by your lender remains available for a specified period, typically 30 to 60 days. Shop around and compare offers from multiple lenders to secure the best rate, and don’t hesitate to negotiate.

3. Consider Buying Points to Lower Your Rate

Buying mortgage points, or discount points, can lower your interest rate for the life of the loan. Each point usually costs 1% of your loan amount and can reduce your rate by about 0.25%. This can provide substantial long-term savings if you plan to stay in the home for an extended period.

4. Act Fast on Desirable Properties

Even with cooling mortgage rates, the housing market remains competitive due to limited inventory. Be prepared to act quickly on properties that meet your needs and budget. Have your finances in order, your pre-approval in hand, and be ready to make a competitive offer.

5. Explore Alternative Loan Options

Don’t overlook other loan options like adjustable-rate mortgages (ARMs), which often offer lower initial rates than fixed-rate mortgages. In a falling rate environment, an ARM could save you money 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 fall, there’s a window of opportunity for prospective homebuyers. By securing a pre-approval, locking in competitive rates, considering points purchases, acting decisively on desirable properties, and exploring various loan options, you can position yourself for success in today’s evolving housing market. Despite challenges like inventory and affordability, the improving rate environment could make your homeownership dreams a reality.