A lot of people are waiting for mortgage rates to drop before purchasing a home. But is that likely to happen? Recent forecasts suggest that experts expect rates to go down, but they won’t decrease as much as many hope.

The good news is that even if home prices don’t significantly decrease, there are still options available to make purchasing a home more affordable.

How Significant Will the Rate Decrease Be?

A few months back, experts thought mortgage rates might fall below 6% by the end of the year. However, the latest forecasts indicate that this might not be the case anymore.

Mortgage rates are anticipated to drop a bit later this year, but Fannie Mae, the Mortgage Bankers Association (MBA), and Wells Fargo project they'll stabilize around 6.5% to 7%.

If you’re putting off buying a home because you’re hoping mortgage rates will drop significantly, you might be in for a lengthy wait. On the other hand, if you need to relocate due to changes in your life—like a new job, a baby, or a marriage—waiting it out may not be a practical choice.

Creative Financing Options in Today’s Market

Since interest rates aren't likely to drop as much as we thought, it might be a good idea to look into other financing options that could help you buy a home sooner rather than later. Here are three strategies to talk about with your lender to see if any of these could work for you:

1. Mortgage Buydowns

A mortgage buydown lets you pay a one-time fee to reduce your mortgage rate for a specific period. This can be really beneficial if you're looking for lower monthly payments at the start. Interestingly, about 27% of agents report that first-time homebuyers are increasingly asking sellers for these buydowns to make purchasing a home more feasible right now.

2. Adjustable-Rate Mortgages

Adjustable-rate mortgages, or ARMs, usually kick off with a lower interest rate compared to a traditional 30-year fixed mortgage. This can make them appealing, particularly if you think interest rates might go down in the next few years or if you’re planning to refinance down the line.

If you recall the housing crash, it's important to understand that today’s adjustable-rate mortgages (ARMs) are different from those risky ones we saw back then. Lance Lambert, Co-Founder of ResiClub, emphasizes this distinction.

““. . . ARM products today are different from many of the products issued in the mid-2000s. Before 2008, lenders often approved ARMs based on borrowers ability to pay the initial lower interest rates. And sometimes they didn’t even check that (remember Ninja loans). Today, adjustable-rate borrowers qualify based on their ability to cover a higher monthly payment, not just the initial lower payment.”
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— Lance Lambert, Co-Founder of ResiClub

Banks used to approve loans without really checking if buyers could pay them back. Nowadays, lenders take the time to verify things like income, assets, and employment. This change helps lessen the risks tied to Adjustable Rate Mortgages (ARMs) compared to how it used to be.

3. Assumable Mortgages

An assumable mortgage lets you step into the seller’s existing loan, which means you could benefit from their lower mortgage rate. With over 11 million homes eligible for this option, as reported by U.S. News, it’s definitely something to consider if you’re looking for a better rate.

Bottom Line

Waiting for mortgage rates to drop significantly might not be the smartest move. There are other options available that could help make homeownership more affordable right now, such as buydowns, adjustable-rate mortgages (ARMs), or assumable loans. It's a good idea to chat with a local lender to find out what could work best for your situation.

How does this affect your homebuying plans for this year?