5 Things Every Buyer Should Know Before Buying a Home

Many people believe that when the Federal Reserve, or “the Fed,” changes interest rates, mortgage rates automatically move the same way. While it might sound simple, that’s not exactly how it works. The Fed has a big influence on the overall economy, but it doesn’t directly control mortgage rates. Understanding this difference can help first-time homebuyers make smarter decisions when planning to buy a home.

The Federal Reserve is the central bank of the United States. Its main job is to keep the economy stable by managing inflation and supporting steady growth. One of the ways it does this is by raising or lowering something called the federal funds rate. This is the interest rate that banks charge each other for short-term loans. It affects credit cards, car loans, and savings rates, but it doesn’t set the rate for home loans directly.

Mortgage rates are actually driven by investors who buy and sell mortgage-backed securities. These investors watch what the Fed says and does because it gives them clues about where the economy is heading. When the Fed raises or lowers its rate, it can change how investors feel about inflation, the economy, and long-term interest rates. That, in turn, can make mortgage rates rise or fall — but not always in the same direction or at the same time.

In fact, mortgage rates often move before the Fed makes an announcement. Banks and investors try to predict what the Fed will do, and they adjust their pricing early. That means by the time the Fed actually changes rates, mortgage rates may have already moved. And in many cases, right after the Fed cuts rates, we even see mortgage rates go up for a short time before they settle down again.

For homebuyers, especially those purchasing their first home, it’s important to know that a Fed rate cut of 2% does not mean mortgage rates will drop by 2%. Mortgage rates are affected by a mix of factors — inflation, investor confidence, and overall market conditions.

The best thing you can do as a homebuyer is to stay informed and work closely with your lender. Mortgage rates can shift quickly, and being prepared to act when the right opportunity appears can make a big difference. The Fed helps guide the economy, but mortgage rates have their own path — and understanding that helps you make better financial choices when it’s time to buy.