Is a 5% mortgage rate the best choice for your home purchase budget?

With mortgage rates still in the range of 6.5% to 7%, most housing experts are not expecting lower rates by the end of the year. However, major economic setbacks could trigger lower mortgage rates.

Therefore, most of the expected interest rates have not changed. But prepare a 5% mortgage rate.

learn more: How to buy a home in 13 steps

What triggers lower mortgage rates? Realtor.com chief economist Danielle Hale said it was a matter of time.

"The most likely catalyst is time. Over time, as you approach the 2% inflation anchor of the Fed's target, it will normalize (the federal funding rate) and it will normalize the long-term interest rate," Hale told Yahoo Finance. "The federal rate may return to the range of around 2.5%, which may be enough to return the long-term yield to around 4%, which could put mortgage rates in the range of 5.5% to 6%.

However, the Fed continues to slow down its walking speed. The market will not expect it to lower short-term interest rates again until September as early as possible.

"If you want to recession, you can get there faster," Hale added. "This could lead to the Fed lowering interest rates, and you might see 5 1/2% of people, and maybe even slightly below 5 1/2% in a worse situation in the recession."

She noted that the Fed cuts and lowers mortgage rates are not a one-to-one claim. From September to January last year, the Fed lowered its benchmark rate by a percentage point and mortgage rates almost rose, Hale said.

learn more: How Fed Rate Decisions Impact Mortgage Rates

A study conducted by Realtor.com in the first quarter of 2025 found that about three of the 10 (29.8%) homebuyers surveyed showed that the recession would make them at least "more likely" to buy a home.

“It seems that some shoppers expect lower mortgage rates or lower house prices, or both, to provide them with some opportunity to buy,” Hale said.

Of course, an economic recession may make many complications an affordable equation: the most likely job and income are insecure.

If the mortgage rate reaches the 5% range, Hale believes it will bring buyers and sellers back to the market. But will a re-energized market bring more competition to buyers?

Hale said that while home buyers are looking for lower mortgage rates, so are home sellers. As the sellers see opportunities, listings may increase to move into their next home at reasonable rates: “When interest rates fall, it usually increases competitiveness in the market because it creates opportunities for home buyers. But, I think, interestingly, this will also create some opportunities for home sellers, so we may not see that it is very competitive.”

learn more: How to get the minimum mortgage rate

The window to lower mortgage rates may open quickly - perhaps just as quickly. As a borrower and home buyer, you need to be prepared.

1. Put your down payment in the bank. When you have the opportunity to buy your own gift, you will be ready for the funds to take action. There are also sufficient closing fees.

2. Check your Credit Score And keep your personal finances in mind.

3. Determine your home price range and target monthly payments. Knowing how many homes you can afford and shrinking the right community can prepare you for early success when the time is right.

4. Explore pre-qualification review. Talk to some mortgage lenders and arrange your home loan options. You can keep the lender in your pocket and when to make a formal loan advance.

In the summer of 2003, the average 30-year mortgage rate dropped to the 5% range, which was lower by six weeks. Then in March 2004, it was short again. During the 2008 housing crisis and the 2008 housing crisis and the recession, longer mortgage rates began, lasting for 14 years and ending October 2022.

There may be no current Fed timeline. This could require an economic reversal, prompting further federal funds to cut tax rates to bring mortgage rates close to 5%

Buy a home when you can afford it. Mortgage rates are not lifelong commitments. You may own multiple homes, and you can always refinance when rates drop even if you buy at a higher price.