Interest Rate Cuts Are Lagging, But Mortgage Lending Is Booming. Should You Buy Now?

With interest rates still hovering around 6.8%, many prospective homebuyers are wondering whether now is the right time to purchase a home or if they should hold out for potential rate cuts later in the year.

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While interest rates haven’t dropped yet, the mortgage market is seeing renewed activity, and experts say buyers may be adjusting their expectations and moving forward with their home purchases anyway.

So, should you buy now or wait? Let’s take a look at what’s happening in the mortgage market, according to a recent TransUnion study, along with factors driving demand and what financial experts say about timing your home purchase.

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Mortgage Lending Is Picking Up — Why?

The mortgage market is seeing a renewed wave of activity, but not because interest rates have dropped, according to Charlie Wise, senior vice president and head of global research at TransUnion. Instead, “Consumers have readjusted their outlook for what the expectations are, realizing they’re not going to see immediate near-term rate relief,” he said.

For the past couple of years, many potential buyers have been waiting on the sidelines for mortgage rates to drop below 6%. But with no immediate relief in sight, Wise explained that buyers have accepted that rates aren’t likely to drop much lower and are moving forward with home purchases based on their needs.

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Why Some Homebuyers Are Locking In at Today’s Rates

Though mortgage rates remain high, some buyers are planning to purchase now with the expectation that they’ll be able to refinance later if rates drop. Many homeowners who locked in mortgages over 7% since 2022 are actively watching for rate drops, Wise said.

“I can promise you almost every one of those people would love the chance to refinance down to 6%,” Wise said. “You’re talking hundreds of dollars a month in savings — which could go toward building savings, paying down debt, or other financial goals.”

This potential for future refinancing is making higher rates feel more acceptable, as long as buyers are prepared to handle their mortgage payments in the short term, he pointed out.

Melanie Musson, a finance expert at Clearsurance.com, agreed that this mindset is pushing some buyers into the market despite higher rates.

She explained that home prices could rise if interest rates drop. By purchasing now, buyers might secure a lower price rather than competing with more buyers later if rates decline.

“If you can refinance to a low interest rate, you’ll have been able to buy a house before values increased, while also enjoying a good interest rate,” Musson said.

Credit Scores Matter More Than Ever

While many buyers may be focused on interest rates, Wise emphasized paying attention to your credit score, which plays a big part in securing an affordable mortgage.

“More than any other type of credit product, the interest you pay really determines what your monthly payment is going to be,” Wise said. “If you have opportunities to improve your credit score in the near term, that can really help to bring down how much you have to pay each month.”

Simple steps like paying down credit card balances, consolidating high-interest debt and checking for errors on your credit report could increase your credit score by 20 to 50 points, he explained. This could lead to a lower mortgage interest rate and significant monthly savings.

One Big Warning: Student Loan Payments Could Impact Your Mortgage Chances

With ongoing confusion around student loan repayment and forgiveness plans, Wise reminded consumers that missed student loan payments could hurt prospective buyers who are preparing to apply for a mortgage.

“Since October first of last year, student loans had basically been in a long, long period of forbearance,” Wise said. “Starting in October, the clock started ticking, and student loans are now being reported to the credit bureaus as on time or late.”

Three or more missed payments will show up on consumers’ credit reports — which could significantly impact mortgage eligibility.

“If those delinquencies start showing up on your credit reports, it’s going to really damage your credit score,” Wise warned. “And the likelihood that you’re going to get a mortgage at a good rate, or even at all, is likely going to be impacted.”

If you have student loans and are considering buying a home, Wise advised checking your loan status immediately and ensuring you’re making payments on time.

So, Should You Buy Now or Wait?

Ultimately, the decision to buy a home depends on your personal financial situation, budget, and long-term goals.

Musson advised prospective buyers to start looking now, even if they’re not ready to make an offer right away.

“Don’t wait,” she said. “You don’t have to buy right now, but if you’re looking, you’ll be more likely to find a house that meets your needs for an affordable price.”

If you’re financially prepared, have a good credit score, and find a home that fits your budget, buying now could help you lock in a lower price and refinance when rates improve.

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