Are You Ready to Buy a House in 2024? Here's How to Find Out

Are you looking to buy a new house? Mortgages might be getting cheaper in 2024. According to data from Freddie Mac, the average U.S. 30-year fixed-rate mortgage reached 7.79% in October 2023 -- its highest level since the Fed started raising interest rates in 2022. But mortgage rates have come down. As of Jan. 11, 2024, the U.S. average mortgage rate (30 year, fixed-interest) was only 6.66%.

If the Fed cuts interest rates in 2024, this could make mortgages even more affordable for home buyers. With less price pressure on the cost of a home loan, more people might want to buy a house in 2024. Especially if you're a first-time home buyer, here are some tips to know if you're ready to buy a home.

1. Make sure you understand the full cost of your mortgage

The total cost of your mortgage is not just about getting a lower interest rate. There are a few components that go into the cost of buying a home, including the following.

Down payment

A typical mortgage will require you to make a 20% down payment. So if you buy a house that costs $300,000, you would need $60,000 of cash. If you want other options that let you hold on to your cash, many of the best mortgage lenders offer lower down payments, as low as 0%-3%.

But a lower down payment might require you to pay a higher interest rate, and it means you're borrowing more money -- so even with the same interest rate, your monthly payment will be higher.

Interest rate or annual percentage rate (APR)

This is the cost of the money that you will be borrowing. Higher interest rates equal higher mortgage costs, making it less affordable to buy the house you want. People with good credit scores will typically qualify for lower interest rates on their mortgages.

Paying points

Some mortgage lenders will let you get a lower interest rate by paying an extra fee upfront, called points. Paying points is a deal you can choose to make with the lender where you pay an extra amount of money upfront based on a certain amount of percentage points of your mortgage cost. For example, if you want to borrow $300,000 to buy your home, 1 percentage point (or point) of that mortgage amount would be $3,000. Paying points can reduce your interest rate and monthly payment, but it requires you to have more cash upfront.

Private mortgage insurance (PMI)

If you have chosen a mortgage with a smaller down payment (less than 20% down), you might have to pay private mortgage insurance (PMI) on your loan. This is an additional cost that's built into your monthly mortgage payment. Not all mortgage lenders use PMI; some might just charge you a slightly higher interest rate if you use a smaller down payment.

Lender fees and closing costs

Along with the down payment, PMI, and other costs of buying a home, you will also have to pay some closing costs and lender fees. Closing costs for a home buyer might add up to a total of 2%-5% of the price of the home. According to The Ascent's research, as of 2022, average closing costs were $6,905, including taxes.

Some closing costs can be negotiated with the home seller as part of the real estate transaction. If a home seller is highly motivated to sell, they might agree to cover some of the buyer's closing costs. But in the 2024 housing market, with high demand and limited supply of homes, home buyers should expect to pay their own closing costs.

Not all lenders charge the same amounts of fees. Pay attention to total lender fees when price shopping for home mortgages. For example, as of Jan. 17, 2024, some of the best mortgage lenders with the lowest APRs were charging fees and points that ranged from $3,191-$6,400 for a 30-year fixed-rate $320,000 loan.

2. Do you have enough cash for a down payment and closing costs?

Not everyone has $60,000 of cash sitting in a bank account. In fact, The Ascent's research found that the typical American savings account had a balance of $1,200. But if you want to buy a house, even if you don't have a lot of cash or perfect credit, you still have options. Consider applying for a special mortgage program with lower down payment options, such as a VA loan or FHA loan.

Depending on your credit score, some lenders will even offer a zero down payment mortgage. And closing costs and lender fees can be expensive, but you don't have to pay them all in cash -- you can roll these costs into your mortgage as part of your monthly payment, and pay them off over the (hopefully) many months and years that you live in the home.

3. Are you prepared for the ongoing costs of homeownership?

Once you're in the house, your work isn't done -- now you have to deal with home repairs, homeowners insurance, replacing broken appliances, upgrading the furnace or HVAC, and other costs of taking care of a house. If you're handy with tools and love learning new home improvement skills, you can cover some of these costs yourself. But owning a home can be more expensive than renting.

Bottom line: Buying a home is a wonderful life-changing adventure, and it can be a good investment. But don't let your home overwhelm your personal finances, leaving you "house poor." Be prepared for closing costs, down payments, maintenance, and other costs before buying a home.