Average 30-Year Fixed Mortgage Rates

These higher interest rates were, as Brian would say, a bucket of cold water for the housing market. Residential real estate caught fire in 2020, as you can see from the chart below, and home prices didn’t really start coming down until interest rates started rising (which began in early 2022).

Home prices haven’t crashed, as some were predicting, but prices have remained stagnant and dropped slightly over the last 2+ years. Higher interest rates have kept many buyers on the sideline, and those who have bought are anxiously waiting for rates to drop so they can refinance their home at a more affordable rate. Potential homeowners want to know if now is the right time, or a good time, to buy, and those that bought homes since rates have increased want to know when they can refinance and get a break on their monthly mortgage payment.

Is it a good time to buy a home?

It is difficult to answer a question that is so personal. If you are someone that doesn’t have anything saved for a down payment and can’t afford a reasonable mortgage payment, it is probably a really bad time for you to buy. If you are on the opposite end of the spectrum and have a large down payment saved and can comfortably afford a mortgage payment at today’s interest rates, it might be a great time to buy. Instead of trying to time the market and buy at the “right time,” buy a home when it makes sense for you. Check out our ultimate guide to buying a home if you are thinking about buying a home or may be purchasing a home in the near future.

To ensure you can comfortably afford a home, ask yourself what would happen if everything went wrong for you. If you can feel good about your answers to the questions below, there’s a good chance you can successfully buy a home.

• Will I be okay if my home is worth less in 5 years?

Home prices don’t drop often, but they typically take longer to recover than the stock market. If you are purchasing a home, you need to be prepared for the worst case scenario of your home dropping in value. This usually means planning to stay in the home at least 5-7 years, or longer if you put down less than 20%, to ensure you are never in a situation where you are forced to sell when you are “underwater” on your home (owing more than the home is worth).

• What if mortgage rates don’t drop anytime soon?

It is very difficult to predict the future of mortgage rates, and if you are purchasing a home, it should be a financially smart decision regardless of whether interest rates drop, go up, or stay steady. Would it be great if rates dropped significantly over the next few years and you could suddenly cut your mortgage payment by 50%? Absolutely. While that is a possibility, you should not count on being able to refinance anytime soon when buying a home. You should be able to afford your monthly mortgage payment on the day you buy (which means it should be no more than 25% of your gross income).

• What if the home requires more repairs than I thought?

Certain major home expenses can be planned for, but many are unexpected and can be devastating if you aren’t prepared. What happens if you need to replace your HVAC unit in the first few months of buying a home? That happened to me. How soon will you need to replace your roof? What is your plan if major appliances fail? Make sure you are financially prepared for the unexpected before buying a home.

• How stable is your household income?

Preparing for the unexpected means thinking about the possibility of uncomfortable events; what would happen if you or your spouse lost your job after buying a home? Do you have multiple sources of income in your household? How easy would it be for you or your spouse to find a new job with a comparable income?

Thinking about how everything could go wrong when you buy a home isn’t fun, but it is a necessary evil to make sure you can truly afford your home and avoid potential financial disaster. It may be unlikely that home prices drop, it may be unlikely that mortgage rates stay high for a long period of time, you may not experience major issues with your home after purchasing it, and you might not experience a negative change in income. However, all of these events are very possible and should be seriously prepared for before purchasing a home.

When can I refinance my mortgage?

I can’t wait until the day I get a call from our mortgage broker, telling me how much he can save us if we refinance our home. Considering we have almost 30 years left on our mortgage, this call will probably come before we pay off our home – but when will it? In 2022 when mortgage rates first hit 7%, I did not think rates would still be around 7% over two years later. Rates could very well be lower in two years, they could very well be higher, and they could very well be about the same.

I made peace with the fact that we locked in a good rate for the time we bought and we will refinance our mortgage when it makes financial sense to do so. It would be incredible to suddenly save a pretty significant amount of money every month on our mortgage, but we made sure we bought a home we could afford at current interest rates. When you are evaluating the affordability of different homes, it is best to assume you won’t have the ability to refinance your home anytime soon.

Mortgage rates could be higher for longer than most people thought. That might affect your ability to buy a home or make your current home more affordable. It would be great if we had a crystal ball and could tell you, “Yes, buy a home that’s a bit out of your budget because you can refinance in May of 2026 at 2.75%. Also my crystal ball tells me you will never lose your job, your home won’t need any major repairs, and housing prices will keep going up.” It would be such an easy decision if that was the case! Until we are able to predict the future with 100% certainty, it is best to err on the side of caution and anticipate what could go wrong when buying a home. It is much better to be wrong about everything going wrong than to be wrong about everything going right.

Home-buying rules

Our Money Guy home-buying rules can be difficult to follow for those in high cost of living areas or first-time homebuyers. However, we have some flexibility built-in to the rules. First-time homebuyers can put down just 3% to 5% on their home, provided they are planning to be in the home at least 5-7 years and are keeping their monthly payment below 25% of their gross income. The rule for everyone else is to put down 20%, spend no more than 25% of your monthly gross income on housing, and plan to live in the home for at least 5-7 years.

These guidelines are meant to provide a framework for you to find an affordable home that gives you plenty of margin to pay for all of life’s other expenses and invest for retirement and the future. It does not mean that someone who spends 25% or less on housing is automatically doing great financially and someone who spends greater than 25% is in a bad spot. However, it can be said that your overall financial risk increases the more of your income you spend on a home.

If you do find yourself in a situation where you are faced with the potential of breaking our 25% rule, you will have to create margin or cutback in other areas to make up for the excess spent on housing. It is very possible for someone who lives in a high cost of living city to spend 30% on housing, invest 25% for retirement, and have enough leftover for all other expenses. But you may have to make some tough decisions. Maybe using public transportation instead of purchasing and maintaining a vehicle allows you to spend more on housing, or if you become a DIYer and constantly repair and fix things up around the house instead of hiring contractors, you can spend a little more on the mortgage. The bottom line is the housing rule can be bent, but may require sacrifices in other areas to do so. As a general guideline, if you are going to spend more than 25% on housing, you should also be investing 25% or more for retirement.

Car-buying rules

Our Money Guy 20/3/8 car-buying rule says you should put down 20% or more on any car you purchase, pay it off in 3 years or less, and ensure the combined monthly cost of all car payments is no more than 8% of your monthly gross income. While other financial influencers believe you should only ever purchase cars in cash, our car-buying rule gives flexibility for those struggling to buy reliable transportation in cash. This rule should not be used by everyone, and if you have the ability to pay for a car in cash, do so. Cars are quickly depreciating assets and car loans are liabilities that should be approached with caution.

We don’t believe in breaking the 20/3/8 rule to spend more on a car, but there are ways you can bend the 20/3/8 rule to buy more reliable transportation. If you put down more than 20% on the car you are planning to purchase, you are effectively able to buy a more expensive car. This should not be used as a loophole to buy a luxury car, but can be great for families looking to step up to a more reliable vehicle.

Student loan rules

When it comes to taking out student loans for college, you should keep your total student loans below your expected first year salary out of school. Student loans are especially dangerous because your dollars are so powerful when you are young – just check out our Wealth Multiplier Calculator if you don’t believe me. Those going into high-paying professions like doctors or lawyers have the flexibility to take out more in student loans, if required, but you should aim to take out as little student loans as possible.

Student loans may not feel like a big burden while you are in school and payments are deferred, but once you graduate, those monthly payments eat into how much you can save and invest for the future. You should always aim to keep your total student loans below your expected first year salary and take out as little in student loans as possible. There are many creative ways to pay for college and you don’t necessarily need to work full-time while in college to avoid a ton of student loan debt. In addition to scholarships and grants, many employers offer tuition reimbursement programs and schools offer work-study programs.

Investing rules

How much should you be investing for retirement? While that is a bit of a loaded question, as a general guideline, we believe you should strive to invest 25% of your gross income for retirement. If you started investing later in life, you may need to invest even more. Unlike some of our other rules, our retirement investing rule is a bit more flexible. In your 20s, it is phenomenal if you are able to invest 25% of your income for retirement, but not expected. Start investing whatever you can as soon as you can, even if it’s as little as $20 per month. Gradually increase your investing over time as your income grows and expenses change, aiming to invest 25% no later than 30.

There may also be years where you reduce your retirement investing from 25% to a much lower number. If you are in the messy middle in your 30s and happen to buy a home and have a child in one year, you may not be able to invest 25% for retirement that year – and that’s okay! While we would love for everyone to get the benefit of investing 25% every single year of their working lives, we realize that life happens and nobody’s path to financial success is a straight line. Your own financial success is not determined by whether or not your savings rate ever deviates, but by how quickly you are able to get back on-track and recover after unexpected financial events. Check out our resource “How Much Should You Save?” for a breakdown of what percentage of income your savings rate can replace in retirement. Our Know Your Number course can help you take it to the next level and determine what savings rate is appropriate for you based on your own goals, assumptions, and desired retirement age.

Our Money Guy rules are meant to be the financial guardrails that keep your life on-track. Rules don’t have tos feel restrictive and suffocating. We hope our rules give you the freedom and flexibility to make big financial purchases, like buying a home, car, or attending college, without feeling like your financial life is on a bad track.

Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

1. I would definitely use a mortgage broker again.

A good mortgage broker may be able to get you much better rates than you would otherwise qualify for. The broker we used was phenomenal and scored us an interest rate about 0.50% lower than typical rates at the time (looking at rates, we essentially got the rate of a 15-year mortgage but for a 30-year mortgage). With mortgage rates higher than they’ve been in decades, it’s especially important to save money where you can and get as low of a rate as possible.

Working with our broker was a breeze; he is local and works for a small family-run business and I knew I could always pick up the phone and ask him any questions I had about the process. By using a broker, we essentially got the super-competitive rate of a large national bank, or even better, and the service of a local family-run business.

2. I’m glad we didn’t cut corners on the inspection.

I’ve heard before of home buyers purchasing homes and waiving the inspection (primarily during the housing frenzy that occurred between 2021-2023), but I never realized how crazy that was until we purchased our home. Our real estate agent recommended an awesome inspector who went above and beyond inspecting the property and alerting us to issues we didn’t know about. The inspection was so cheap compared to all the other costs associated with buying a home that I can’t imagine why someone would want to save money and skip the inspection (unless they are buying a new construction, potentially).

For reference, our home is 20 years old so it is definitely not ancient and falling apart. The inspector uncovered some minor and moderate issues with the house that helped us negotiate with the seller and, by being made aware of and fixing these issues now, so they did not become big headaches in the future.

3. I would never buy a home without an agent.

I will not judge you if you are experienced in buying houses and don’t want to use an agent, but as someone that had never been a part of a real estate transaction before, I am so glad we used an agent. Our agent was intimately familiar with the local market and was able to use that knowledge to help us get into an amazing home at an amazing price. I know for a fact we would be spending substantially more on a home if we had not found a great agent to help us along the way.

4. If I could do it differently, I wouldn’t get so attached to the first home I fell in love with.

When you find a home you really love, it can be difficult to move on if you don’t get the home. The home I first fell in love with sold to someone else, but we ended up finding an even better home, in the same neighborhood, for a better price. I would caution potential buyers about becoming laser-focused on one home. Your offer might not get accepted or issues could come up during the inspection that cause you to back out. It’s easy to imagine yourself in homes you really like, but always keep your options open until you are under contract on a house. Like most big issues in finance, our emotions can betray us so it is important to keep an open mind and to be well grounded in knowing what you are looking for based on a solid list of must and nice to haves.

5. No home is perfect, and you will have to make sacrifices.

Unless you can build the home of your dreams from the ground up, you will probably have to make sacrifices when buying your home. Our home? The roof is old, there are rats in the crawlspace (working on it), the HVAC will need to be replaced soon, the yard is very sloped and has drainage issues, and I could go on. But our home is in a great neighborhood, we love the layout and the amount of space, we have hardwood floors (this was mostly a big deal for me and not my wife; I just hate fake hardwood floors), the landscaping is beautiful, I have room for a vegetable garden, the appliances are modern and updated, and it’s setup to a great place to create blossoming memories for my family.

When you buy a home, you need to figure out what is most important to you and what you are willing to sacrifice on. Chances are you will have to make sacrifices, but that’s okay.

6. Interest rates may not go back to 2020 levels anytime soon (and home prices may never return to 2020 levels).

We are fortunate to have found a home we can afford, but this was still a tough pill to swallow. At interest rates four years ago, or at home prices four years ago, we could buy so much more home. It hurts to think about what could have been if we had bought a house back in 2020 – until I think about how unprepared we were to buy a house back then. We were both at different points in our careers, we didn’t have much saved for a house or retirement, and weren’t ready to buy a home by any measure.

We bought a home that fit in our budget at current rates. We could have stretched and bought more home, but we want a home we can afford now, not a home we can theoretically afford if interest rates drop by a certain amount.

7. I’m glad we didn’t wait until we were able to put 20% down.

Who are these people buying their first home with 20% down and what is their secret? With prices rising like they have, we would have had to make tremendous sacrifices even to consider purchasing a home if we had to put 20% down. If we wanted to buy anytime soon, saving for retirement would not be happening. If we wanted to save for retirement and put 20% down on a house, it could be years or longer before we could buy.

Putting less than 20% down on a home is riskier since you start with less equity and more expensive since you pay PMI. The alternative, though, is much worse for many first-time buyers. Prices could continue to climb and run away from you or you may only have margin to save for a home and nothing else.

Buying your first home is never easy, especially right now. If you are looking to buy soon or in the future, I hope my personal experience can make it a little bit easier when it’s time to buy.

Regarding the 25% gross mortgage rule listed: I believe Dave Ramsey has recommended 25% net pay. Do you find that variance from net to gross ever being a concern when deciding on a future mortgage?

Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

Use our housing calculator to learn how much house you can afford with our rules.

My wife and I are saving for our 1st home in an expensive state. Should we look for starter homes that we’ll outgrow or “stretch” for a more expensive home that we can commit to for 10+ years?

Before buying a home, use our Home Buying Checklist. Once you’re ready, use our Home Buying Calculator to see how much house you can afford.

Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

I’m a 28 year old with $120k in stocks and debating between pulling out around 60k-70k for a down payment on a house. My dad says this would slow down my compound interest that would pay off in the future. Thoughts?

Considering buying a home? Answer these questions on our Home Buying Checklist. Not sure how much house you can afford? Use our Home Buying Calculator and calculate your Net Worth to get a better handle on your current standing!