5 tips for buying a home when mortgage rates are high

If you're in the market to buy a house, don't expect mortgage rates to drop anytime soon.

"In the near term, rates are going to be stuck near 7%," said Jonathan Miller, CEO of Miller Samuel Real Estate Appraisers and Consultants. "If they fall, we're talking about straddling 6% — not the 3% or 4% we saw during the pandemic."

But waiting to buy could cost you more in the long run, Miller told CNBC Select, since the persistent housing inventory shortage is just pushing prices up further.

"There is an obsession with interest rates right now. People are throwing salt over their shoulder in hopes they'll come down," Miller said. "The obsession should be on housing prices today instead of that sunny day when rates are a lot lower — because that seems less certain."

So how do you navigate homebuying in a high-rate environment? We have some tips.

First of all, remember that while interest rates today are higher than the 4% average we saw from 2010 to 2020, they're not elevated if you take the long view: In the 1990s, rates averaged 8.1% and in the 1980s, they were up to 12.7%.

That might be cold comfort but it shouldn't stop you from pursuing homeownership if you're financially prepared. Here are signs you are ready to buy:

• Savings: You have enough for a down payment, closing costs, other upfront expenses and still some for an emergency fund.
• Income: You have a steady income and have ideally been at the same job for at least two years. 
• Affordability: You've determined how much you can afford to put toward monthly mortgage payments by using the 28/36 rule or another method.
• Credit history: Your score is at least 620 or you've found a lender who accepts less-than-ideal credit history.
• Debt: Your debt-to-income ratio is 40% or lower.
• Desired market: Don't buy just to own a home or risk putting yourself in financial jeopardy. There should be quality homes in your price range in the area you want to live in.

If you check all these boxes, you are likely ready to buy — even if rates aren't as low as you'd like.

When figuring out how much home you can afford, err on the side of caution. There are several methods to determine that amount. (These numbers should be your ceiling — try to stay well below them to give you a buffer.)

• 28/36 rule: Housing expenses (including mortgage payments, utilities, HOA fees and homeowners insurance) should be no more than 28% of your gross income and no more than 36% on debts overall.
• 30% rule: Keep monthly mortgage payments and other housing costs to no more than 30% of your take-home pay.
• 2.5x your annual salary: Your mortgage should take up no more than 2.5 times your annual gross pay.

If you are part of a two-income household, another way to be conservative about your housing budget is to calculate how much home you can afford with just one salary. This might seem extreme but would provide a safety net in case of a job loss or other financial downturn.

With a higher mortgage rate, your monthly payments are larger. If you can pay for a more significant chunk up front, you'll pay far less in interest over the life of your mortgage.

The median price for a home in the U.S. in January 2025 was $418,489, according to Redfin. Here's how that would play out on a 30-year mortgage at 7% with a 10% down payment versus 20% down..

By putting 20% down, you'd ultimately save $58,383.07 in interest payments.

You can grow your savings faster with a high-yield savings account or money market account but still have the ability to withdraw cash if needed.

A motivated seller may offer incentives to get a deal to the finish line.

• Seller rate buydowns: The seller purchases a rate reduction on your mortgage for a limited amount of time, typically a year, so you'll pay less interest on the loan.
• Seller closing cost concessions: The seller covers part or all of the buyer's closing cost.
• Price reduction: The seller drops the asking price.

If getting a lower mortgage rate is your top priority, you may be able to use other bargaining chips. For example, a seller may offer to buy down your rate if you agree to add a larger sum upfront or make an offer above the asking price.

Their willingness to make concessions depends on the property, the local market and their individual priorities. Work with your real estate agent to negotiate the best deal.

Government-backed mortgages like FHA loans, USDA loans and VA loans boast lower rates than conventional loans. If you qualify, you may be able to get your dream home for a lot less.

FHA loans are available to a broad variety of homebuyers and lenders will approve you with a credit score as low as 500.

VA loans are zero-down mortgages backed by the U.S. Department of Veterans Affairs and available to current and retired service members.

USDA loans are an option if you meet income requirements and are open to looking at homes in select rural and suburban areas.

With some of the lowest rates for FHA loans on the market, online lender Pennymac grants eligible borrowers up to $1,000 towards closing costs.

If you want an in-person lending experience, Chase Bank has more than 4,700 branches nationwide.

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