How to prepare for a mortgage rate drop

Since the start of this year, mortgage rates have slowly drifted downward. Mortgage rates reached their highest point this century in October 2023, topping out at 7.79% for 30-year fixed-rate mortgages and 7.03% for 15-year fixed-rate mortgages. Current mortgage rates have dropped over one whole percentage since then.  

Without a doubt, a drop in mortgage rates is an opportunity for you to make a big move on your homebuying journey. But the same is true for everyone who’s been asking themselves “When will mortgage rates go down?” That’s why being as prepared as possible, including  getting pre-approved with PowerBid, is incredibly important. 

Let’s take a look at why there is an expectation of a drop in mortgage rates, what that will look like, and what you should do to be ready when rates do drop. 

Mortgage rates have already started going down from the start of this year, as 2025 began with the rate for a 30-year fixed-rate mortgage just above 7%. At the time of writing this article, the rate has since gone down over half a percentage point. 

At the moment, experts are predicting the Federal Reserve will lower interest rates at the end of its next meeting Sept. 17. If interest rates are lowered, it could be followed by a drop in mortgage rates. 

The Federal Reserve doesn’t control mortgage rates. When you hear that the Fed is holding interest rates steady, that is in reference to the federal funds rate. That is what commercial banks use to lend and borrow from one another, and it affects the long-term outlook of the bond market, which is a driver of mortgage rates. That’s why the Fed’s actions can affect mortgage rates, but it happens indirectly. 

At the Fed meeting on July 29-30, it was announced that there wouldn’t be a change in current interest rates. 

To answer the question of when mortgage rates will go down, it’s impossible to be exact. The best course of action is to pay attention to mortgage rates leading up to the next Fed meeting, scheduled for Sept. 16-17. 

The Federal Reserve famously has a dual mandate: pursuing the economic goals of maximum employment and price stability, which means keeping inflation low. The Fed has traditionally had a goal of 2% inflation. Basically, this means that something that cost $1 last year costs $1.02 this year. This is considered a manageable inflation number.  

In the summer of 2022, as the U.S. and global economies were dealing with the disruptions caused by the global pandemic, inflation surged to 9.1%, far off the Fed’s goal. Because of that, the Fed carried out a series of rate increases to get inflation under control. This in part led to higher mortgage rates, but it also helped to curb inflation. 

Since then, inflation has been dropping closer to traditional levels. As of their fifth meeting in July 2025, the inflation rate is at 2.7%. 

Before getting into what could likely happen when rates drop, it’s important to acknowledge the foundational principle of any market: supply and demand.  

In the housing market, supply refers to the number of homes for sale at any one time. This is called housing inventory. Demand refers to the number of homebuyers in the market at that moment.  

When mortgage rates drop, the demand will likely go up. Buyers who’d been waiting for a more affordable time to buy will start looking for homes.  

They will be met by a market that has seen housing inventory improve over the past few years after having been extremely low during the first few years of the pandemic. Over the past year, the number of homes for sale grew by about 125% from July 2024. 

Those two factors should make it a good time to buy when rates drop. In that situation, affordability will make homeownership possible for more would-be buyers, and there should be enough options that competition among buyers shouldn’t be too intense. 

One thing to keep in mind is that while inventory has improved, it’s still not as high as many housing experts would like it to be. The U.S. Census Bureau reports that there are an estimated 499,000 new homes that have been listed for sale as of the end of July 2025. This is below last month’s estimate but above where July ended the previous year. 

So, while a rate cut might spur buyers to take action in a favorable market, the number of listings could dry up eventually. And that might cause home prices to rise. Buyers looking to take advantage of a rate cut should act quickly. If you don’t find a home you want to buy in the first weeks or months after the rate cut, home prices could start to go up, and you could get priced out of the market.

If you’ve been waiting for a Fed rate cut or for mortgage rates to drop, keep in mind that you’re not alone. Many buyers seem to be holding off on making a home purchase this summer, most likely waiting and hoping interest rates would go down later in the year or to start 2026. If you are also waiting, that means that you’ll be dealing with competition. The best way to deal with competition is to be ready to move fast. Here’s how: 

When you’re preparing to buy a home, organization is key, especially when it comes to financing. You can move much quicker when mortgage rates go down.  

Gather financial documents like proof of income (W-2s or tax returns for self-employed individuals), asset statements and details on any properties you own. Whether you're purchasing or refinancing, you'll also need contracts, insurance and sometimes additional financial information. Keeping these documents handy and complete helps ensure a smoother process with fewer back-and-forth requests from your lender. 

Also, check your credit report and make sure everything is correct. Fix any issues you see to show lenders you’re a responsible homebuyer. 

Knowing how much home you can afford isn’t just about crunching numbers. It’s about peace of mind. By calculating your monthly payments upfront, you can confidently shop for homes that fit within your financial comfort zone. It helps you balance your dreams with practical choices. Plus, it streamlines the buying process, saving you time so you’re able to take advantage of interest rate cuts quickly. 

The 28%-36% rule is a helpful guideline for homebuyers to determine a safe borrowing limit It suggests that your monthly mortgage payment should not exceed 28% of your income, while your total debt should stay under 36%. By sticking to these limits, you can ensure you’re not stretching yourself too thinly financially, keeping your budget balanced and manageable as you move into homeownership. 

Getting pre-approved means a lender has taken a close look at your financial health and is willing to lend you a certain amount of money. This is verified by a pre-approval letter. Sellers take these letters seriously because they demonstrate that you’ve cleared some of the financial hurdles necessary for securing a mortgage.  

For a more competitive edge, consider our PowerBid mortgage approval, which helps you compete with cash buyers, close deals quickly with our five-minute approvals* and simplify the mortgage approval process. 

Getting started on a pre-approval is easy. All you need to do is start our online application process, using the financial documents mentioned above. The lender will perform a credit check then provide a Loan Estimate outlining potential costs.  

If approved, you'll receive a pre-approval letter, stating the maximum loan amount you're likely to get. Pre-approvals are valid for 90 days and can be renewed with updated financial information. 

This fall looks like it will be a good time to be a homebuyer. The Fed is expected to cut rates, and mortgage rates should come down as well. Start looking while the supply of homes for sale remains high, because once home purchases increase, prices will likely go up. That’s why you should get started right away by applying for a mortgage pre-approval. 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.} 

_{Savings, if any, vary based on the consumer’s credit profile, interest rate availability and other factors. Contact Rate for current rates. Restrictions apply.} 

_{Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. Rate  does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.} 

_{* Rate’s 5-minute pre-approval refers to an automated underwriting review of borrower submitted loan documentation and subsequent pre-approval and should not suggest to a borrower that Rate has fully funded or approved the borrowers mortgage application within 5 minutes. Rate cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Not all borrowers will be approved. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Restrictions apply.}