What Buyers May Be Getting Wrong About Mortgage Rates

Misconceptions about rates, down payments and loan requirements could be delaying buyers’ plans.

Some prospective buyers may be putting homeownership on hold without an accurate picture of mortgage rates or the financing options available to them.

A Neighbors Bank survey of about 1,000 prospective home buyers found that 45% overestimated the average 30-year mortgage rate at the time of the survey. Meanwhile, 72% said they had delayed their home search while waiting for rates to improve, with an average wait of 13 months.

Waiting for a Lower Rate

Buyers waiting for rates to fall were holding out for approximately 5% on average. Some were already questioning their decision to wait: 41% regretted not buying before rates or home prices climbed further. Seventeen percent said they would have bought sooner.

Waiting has also brought challenges for those trying to save. About half of respondents said rising rents had made saving for a home more difficult.

Nationally, the median existing-home sales price was up 2% year over year in July, following a record high in June, according to the National Association of REALTORS®.

At the same time, buyers moving forward may be finding more choices. Freddie Mac Chief Economist Sam Khater noted that additional homes for sale and slower price growth in many areas were helping create a more balanced market.

Buyers May Be Underestimating Their Options

Rate expectations are only part of the picture. A separate Neighbors Bank survey of about 1,000 middle-income renters found widespread misconceptions about what it takes to qualify for a home loan.

Nearly half, 45%, believed they needed a credit score of at least 700. More than half, 55%, thought a down payment of 20% or more was required. Another 29% believed they needed between 10% and 19% down.

Yet 94% did not know a down payment could be as low as 3% to 3.5%.

NAR reported that the median down payment among first-time buyers was 10% last year. Federal Housing Administration loans can require as little as 3.5% down for eligible borrowers.

Ashley Harris, director of homebuyer education at Neighbors Bank, encourages buyers to check actual rates and available loan options before putting their plans on hold. A clearer understanding of those options could help some buyers move sooner than they expected.

Start With Buyer Education

The renter survey also found that respondents wanted real estate agents to help them understand financing programs they might qualify for. Connecting buyers with lenders can give them a clearer picture of their options, including down payment assistance.

Harris also pointed to discount points as an option to explore. These allow borrowers to pay more upfront for a lower interest rate. A lender can help buyers compare that cost with the potential savings.

For MetroTex members, the findings suggest a useful starting point for buyer conversations: What mortgage rate are they expecting? How much do they think they need to put down? Have they reviewed those assumptions with a lender?

Those answers can reveal which questions need attention before a buyer decides to keep waiting.