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Interest rates are on pause and borrowers can breathe a little easier — at least for now. That seemed to be the sentiment this week after the Federal Reserve announced that it was keeping the benchmark interest rate range unchanged. It marked the fourth time the Fed has left rates as is following a surge that brought them to their highest point in decades.
While rates are still high — and the corresponding rates for borrowers elevated — a pause is still better than another hike. But there are ways to take advantage of this now before the next Fed meeting in March, particularly for homebuyers who have been coping with significantly elevated rates. Below, we’ll break down four things homebuyers should do now that the interest rate pause looks to be lasting a bit longer.
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4 things homebuyers should do with interest rates on pause
While each homebuyer is unique, here are four things many buyers should consider doing now while rates are steady.
Improve their credit
This may seem obvious but it’s important to remember that the best rates and terms will be reserved for those borrowers with the highest credit scores and cleanest credit profiles. So the first thing homebuyers should be doing now — if they haven’t already — is to improve their credit as much as possible.
With a little discipline, borrowers can improve their credit scores from fair to good. This involves paying your existing bills on time but also means refraining from poor spending habits that may have hurt your credit in the past and avoiding applying for other credit while on the house hunt. By taking these steps now you’ll better position yourself to get a low rate.
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Get their finances in order
Do you have to sell your existing home to afford to buy a new one? Or are you relying on a large infusion of money whether that be a bonus, a tax refund or some other source? If you answered yes to either of these questions, then it makes sense to get your finances in order now. The mortgage interest rate environment is rapidly changing and you’re going to need to be proactive and aggressive in the developing market of 2024.
Accordingly, you won’t want your finances to be a block. So, if you need the equity in your current home to get a new one, consider listing it soon. And if you need your tax refund, get your paperwork and file electronically right away. Everything you can do to improve your financial situation now will help.
Start shopping for lenders
Once you’ve taken the above steps you’ll be prepared to start shopping for mortgage lenders. While rates are generally consistent among lenders you may be able to find a lower rate by shopping around versus accepting the first one you’re offered. And remember that every dollar counts, so a rate that’s even slightly lower with one lender could pay dividends over the life of the loan.
Lock in a rate
Sure, today’s rates pale in comparison to what could’ve been secured in 2020 and 2021, but they’re still around average, historically. But as the volatility of the last few years has demonstrated, that doesn’t mean they’ll stay where they are for very long. So it can’t hurt to lock in today’s average rate now (assuming you’ve taken the above three steps first).
If rates drop before you close on the property, you could always unlock your rate and lock the new, low one in instead. Or, if rates drop long-term, you could look to refinance. What you should try avoiding, however, is waiting for the perfect time to get a rate. That may not ever come and you could wind up paying more in the future than if you had just locked in an imperfect rate now.
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The bottom line
While an interest rate pause isn’t as beneficial as an interest rate cut, it does give borrowers some time to readjust. This is particularly crucial for homebuyers, many of whom have been priced out of the market in recent years due to high rates and low inventory. With this pause, they should take their time to improve their credit and get their finances in order. From there they should shop for lenders and look to lock in a favorable rate when found. By taking these four steps now buyers will better position themselves for financial success in their new home.