On Sept. 17, the Federal Reserve lowered interest rates by 0.25 percentage points to 4.00-4.25% — the first rate cut since the end of 2024.
This move marks a pivot toward bolstering a softening labor market, despite inflation still running above ideal levels.
Personal finance radio host and bestselling author Dave Ramsey tackles the question of whether the interest rate cut will affect mortgage rates for home buyers.
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“The Fed just cut interest rates. And you might be wondering: Will this bring mortgage rates down enough for me to finally afford a home (without auctioning off my firstborn)?” he asked in an email newsletter sent to TheStreet.
“Good news!” he wrote, answering his own question. “There’s still hope, no matter what the market does.”
Dave Ramsey says mortgage rates are likely to go down slightly
Mortgage rates are likely to come down, Ramsey wrote, but he urges people not to count on a dramatic drop.
The Fed has only signaled small adjustments to the federal funds rate. While this rate doesn’t directly set mortgage rates, it heavily influences their direction.
The current outlook suggests the rate could end 2025 near 3.6%. Since the Fed tends to reduce rates in 0.25-point increments, that hints at possibly two more cuts ahead.
“Keep in mind,” Ramsey emphasized, “3.6% doesn’t mean mortgage rates will go that low. Mortgage rates are usually 1–3% above the federal funds rate.”
Lenders had already started lowering mortgage rates ahead of the September cut, and that trend may continue through the end of the year.
Still, Ramsey says mortgage rates are influenced by more than just Fed policy — factors such as the bond market also play a role.
“That’s why no one can predict what mortgage rates will do with 100% accuracy,” he wrote. “So be careful not to base your home-buying decision only on rates.”
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Ramsey believes personal finances indicate when to buy a house
Ramsey advises home buyers to take a careful look at their entire financial situation before purchasing a home.
“You should wait to buy a house if you aren’t financially prepared for homeownership,” he wrote. “No matter what the housing market is doing, buying a house is a bad idea if you don’t have your ducks in a row.”
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One major reason to hold off, Ramsey says, is if you’re still carrying consumer debt.
Whether it’s student loans, credit card balances, or car payments, these obligations can strain your budget. Clearing them out first gives you more breathing room — and that flexibility becomes crucial once you’re responsible for homeownership costs.
Another key factor is emergency savings. Ramsey advises having a cushion that covers three to six months of one’s regular expenses. Without it, an unexpected repair — such as a broken furnace or a malfunctioning refrigerator — could turn into a financial crisis rather than a manageable hiccup.
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Another key factor is emergency savings. Ramsey advises having a cushion that covers three to six months of one’s regular expenses.
Without it, an unexpected repair — such as a broken furnace or a malfunctioning refrigerator — could turn into a financial crisis rather than a manageable hiccup.
Dave Ramsey discusses down payments, cost of a home
A down payment also plays a big role. First-time buyers should aim for at least 5–10%, but reaching the 20% mark is ideal.
A larger down payment not only lowers one’s monthly mortgage bill, it also helps to avoid private mortgage insurance (PMI), which can tack on hundreds of dollars each month.
Not being able to truly afford a house payment is another major consideration, Ramsey explains:
Don’t buy a house if the monthly payment (including principal, interest, taxes, homeowners insurance and HOA fees) on a 15-year fixed-rate mortgage would be more than 25% of your take-home pay. Any more than that, and you run the risk of not having enough money left in your budget each month to put toward other important financial goals — in other words, you’ll be house poor …. Every day, we talk to folks who bought a house before taking those steps and wound up regretting it because they got stuck with a giant, expensive burden.
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