The Housing Blueprint: Rates, Renos and Refis in 2025

As you can see in the following graph, housing prices grew rapidly from 2020 to 2022, rising by more than $125,000 for an average home. Since then, they’ve bounced around and, today, are about the same price as in mid-2022, averaging out at $418,489, as of January, up 4.1% from the previous year.

Prices have stayed pretty steady, due to lackluster inventory. Currently, the U.S. has about 1.15 million housing units for sale, up 16.62% from a year ago, but still down from the 1.46 million in 2017.

The low available supply, combined with high mortgage rates, will most likely keep prices at current or slowly increasing levels for a while.

The average 30-year mortgage rate remains stubbornly high—currently 6.87%—despite the Fed’s interest rate cuts.

Yet, folks are still buying homes. According to the National Association of Realtors, existing home sales rose 2.2% in December, the biggest increase since February 2024. And new home sales also continued to rise, up 3.6%, to 698,000 units. However, we can expect that number—at least in the near term—to fall, as housing starts for January 2025 dropped by 9.8% after surging in December.

All in all, housing seems sort of anemic right now. And economists expect more of the same for 2025. Guesstimates for mortgage rates this year run from 5.8% to 6.7% by year-end.

No question, the lack of inventory, as well as high mortgage rates, has been off-putting for buyers. But if you’re like me—I’ve been in the market for a home since the pandemic and have been patiently waiting for prices and mortgage rates to stabilize—you may just be tired of waiting.

So, the question becomes…

Should You Buy Now?

I’ve decided to take the plunge sometime this year, and here’s why:

Higher inventory levels. While not great, the current list of homes that meet most of my criteria now number in the sixties. A year ago, my matches were half that!

Less competition. Many buyers have just given up, and others who may have purchased their homes during historically low-rate periods, are not willing to jump into a higher-rate mortgage right now, so that means you won’t be one of 25 or so vying for the same home and won’t have to face the bidding wars that were normal just a few years ago.

More buying leverage. Since there are fewer buyers and higher inventory, houses that would have sold in an hour or two may now be on the market for 30-90 days. That means you may have more bargaining power. And since inspections are de rigueur today (unlike the no-inspection contingencies during COVID), buyers have the opportunity to negotiate prices if the inspection isn’t up to par.

Winter means fewer home sales, so sellers may be more motivated to close. Fall and winter are traditionally slower months for the real estate industry. Parents don’t usually want to move their children mid-school year. And no one wants to fight snow and ice while moving. The worst move I ever had was relocating from Dayton to Columbus, Ohio—the day after Thanksgiving. It began snowing before the moving truck arrived, and I’m not kidding—it was a blizzard by the time we departed my old home for the new one.

All this means that sellers may be more flexible. By springtime—although you may see more inventory—you’ll also have more competition from other buyers.

Qualified, healthy buyers get a break. The higher your credit score, the lower your mortgage rate—and the less money you will pay out during the life of your loan. Here’s an example of how a small change in credit score can reduce—or increase—your monthly payment.

You may be able to buy down your interest rate. A buydown means that you pay points to (sometimes temporarily) buy down the mortgage rate on a new loan. Typically, one point costs 1% of the amount you borrow and reduces your interest rate by 0.25%. So, one point on a $300,000 mortgage would cost you $3,000.

However, the calculation for the cost of a buydown is really not that easy. The total buydown fee depends on the number of the years of the buydown, and the total principal and interest (P&I) savings each year. It’s best to use a calculator such as this one.

One of the most popular temporary buydowns is a 3-2-1. With this buydown, you would receive a 3% reduction in your rate for the first year of the loan, followed by a 2% decrease for the second year, then a 1% lower rate for the third year of the loan.

After that, you would pay the full interest rate for the remainder of the loan term. According to the above calculator, the buydown fee on a $400,000 loan would be $18,343.88. This is an upfront payment that can be made by the borrower, lender, seller or a third party (such as a builder).

Here’s the breakdown of payments and savings.

And it’s important to note that although your initial mortgage rate with a buydown will be lower than the going rate, you will still most likely need to qualify at the higher current rate.

You can refinance when rates decline. Listen, my first mortgage was at a rate of 14%. I’ve owned a lot of homes in my life and have refinanced more than a handful. I’ll talk more about refinancing in a minute, but just know that the rate you start with today doesn’t have to be the rate for the entire term of your loan. In other words, “You can marry the house, but date the rate.”

Adding to your downpayment can also lower your costs. If you can make a 10% or 20% downpayment on your home, your lender may give you a discounted rate—as much as half a percent. And … with 20% down, you won’t have to pay the private mortgage insurance (PMI) fee, which is currently running 0.46%-1.5% of the loan amount, according to the Urban Institute.

And while 42% of people pay as little down as possible, about 34% of homes are purchased with cash, and Redfin says that it’s not unusual to see buyers putting 35% or more down on their homes.

You can begin building equity immediately—and get a tax deduction! The sooner you buy, the more equity you will build up for your next move, or your heirs. Also, Uncle Sam still allows you to deduct your mortgage interest expense. According to the IRS, “You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.”

Bottom line, buying now or waiting depends on many factors, but especially your personal circumstances. But hopefully, this section helps clear up some of the confusion rampant in the marketplace today and will aid you in deciding which is the best route for you.

Don’t Worry—There’s a Mortgage Loan Tailor-Made for You!

Low downpayment, 15- or 30-year, VA, FHA, conventional, adjustable rate, jumbo—you name it; there’s a mortgage for it.

Here are the most common types of mortgages:

Conventional Loans. More than three-quarters of buyers take out this kind of mortgage. You can sign up for a 10- 15- or 30-year mortgage. And with a fixed rate, you’ll always know what your payment will be; that is, the principal and interest part of the payment.

As we know, your homeowner’s insurance and taxes are usually add-ons to your payment when you finance your home purchase, and those, of course, will increase over time. With 20% down, you won’t have to pay PMI on most conventional loans.

FHA Loans are government-backed mortgage loans that allow higher debt ratios and lower credit scores (minimum 500 with a 10% down payment; 580 if you want to just put down 3.5%).

However, FHA loans do require mortgage insurance, which will cost you, upfront, 1.75% of the base loan amount as well as a monthly premium, ranging from 0.15% to 0.75% of the loan amount.

There are also maximum loan limits with FHA loans. The current maximum FHA loan amount for a single-family home in the U.S. ranges from $524,225 to $1,209,750, depending on the cost of housing in your area. In my area, here in Tennessee, the maximum loan limit that FHA will finance is $524,225.

This website, from the U.S. Department of Housing and Urban Development, shows the loan limits in your region.

Additionally, FHA loans allow borrowers to accept up to 100% of their down payment in the form of a gift from a relative, friend, employer, charitable group, or government homebuyer program. And you can borrow against other property types, in addition to single-family residences, including two-unit homes, three- and four-unit homes, condominiums, mobile homes, and manufactured homes. But you cannot use an FHA loan for a strictly investment property; if you buy multiple units, you must occupy one of them.

Veterans Administration (VA) Loans are guaranteed by the U.S. Department of Veterans Affairs and can be used by veterans and active-duty military members. The biggest advantages are no down payment is required, there is no minimum credit score, and the rates are usually more attractive than conventional loans.

U.S. Department of Agriculture (USDA) Loans are available to rural home buyers with low to moderate incomes. These loans do have maximum income limits but also require no down payment, the mortgage rate is better than the conventional rate, and borrowers can finance their closing costs right into the loan.

You can find the USDA loan limits for your area on this map.

Adjustable-Rate Mortgages (ARMs). It used to be that you could get an adjustable-rate mortgage for a rate significantly less than the traditional 30-year rate. But that’s no longer true. I did a quick search and found that ARM rates currently run 5.625%-6.75%.

According to Bankrate.com, here are some of the most popular ARMs right now:

The 5/1 ARM gives you the same interest rate and principal and interest payments for the first five years. After that, every year, your interest rate will adjust, up or down, up to 1% based on the current market. There’s also a 5/6 ARM that adjusts every six months.

3/1 or 3/6 ARMs offer an introductory rate for three years, followed by annual or six-month rate resets.

7/1 or 7/6 ARMs stay fixed for seven years, then you’ll adjust (either higher or lower) every year or six months.

10/1 or 10/6 ARMs provide the longest period of stability—10 years without a rate change. After that, the rate can be adjusted annually or every six months.

Most ARMs have caps on how much the rate can increase in one year (or whatever the interval is), along with a lifetime cap that limits the amount it can increase throughout the loan’s term.

Just make sure you have full disclosure so that you know how often and how much your rate can fluctuate.

This chart from Bankrate.com shows the difference in payments for an ARM compared to a fixed-rate mortgage.

In the current environment, there’s not that much of a difference between ARM rates and fixed mortgage rates, so you’re probably better off choosing the fixed-rate mortgage.

Balloon Mortgages can be attractive if you are planning to move within a few years or if you think rates are going to come down when the balloon is due. They work like fixed-rate mortgages, in that you amortize them over a longer term (such as 30 years), pay the principal and interest, and then the rest of the mortgage comes due in 3-5 years (for residential) and 5-10 years) for commercial loans.

Because this type of mortgage is riskier to both the borrower and lender, since you may not be able to refinance—or sell—your home when the note comes due, the rates tend to be a bit higher than the regular conventional mortgage rate.

Bank Statement or 1099 Loans are just what they sound like—no tax returns or W-2s required. The bank just wants to see two or three years of your bank statements or your last two 1099s and will qualify you for a mortgage based on those documents.

Since these types of loans were one of the catalysts for the subprime mortgage crisis in 2007, ultimately leading to a recession, they’ve been out of favor for a while. But they are starting to crop up again. Indeed, the requirements are stricter today—higher down payments and higher rates—but they may still be a good tool for small business owners, entrepreneurs, freelancers and gig workers, whose tax returns usually look a little lean to a banker.

Most of these loans will require at least 10% down, and the rates are running 2%-4% higher than typical conventional loan rates. But if you can make a higher down payment, you will probably be able to reduce the loan rate.

Jumbo Loans, throughout most of the U.S., jumbo loans are used for mortgages of more than $806,500. Your lender will generally require a downpayment of at least 20%. Jumbo rates today average 6.97%.

Which Lender Is Right for You?

There are basically two types of mortgage lenders:

Mortgage Brokers are a growing class of lenders. Today, there are almost 21,000 in the U.S., up 6.5% from 2023. These lenders are middlemen; they don’t lend their own funds but connect a variety of mortgage lenders with borrowers. They may represent scores of lenders. They will take your mortgage application and documents and pass them on to potential lenders for processing and approval.

Mortgage Bankers are employees of banks, credit unions, lending agencies, or other financial institutions. They offer mortgages using the institution’s own funds and will process and approve your loan.

And if you are buying a newly built home, you may find that the builder also offers financing through its own operation. Large builders like Pulte have this option, as does manufactured home builder Clayton Homes. Sometimes, this is a good choice, as builders will often provide discounts, cover some closing costs, offer upgrades, or even buydowns if you go through their lending platform.

To ensure that you find the right lender for your needs, it’s important to:

1. Shop around. Get referrals (your Realtor, friends and family members can help you with this). I recommend that you speak with several lenders. You don’t need to apply to all of them; in fact, if they insist that you apply before they give you details such as required down payments and rates, go somewhere else.
2. Compare offers, including rates, upfront fees, discount points, and other fees. Be aware that sometimes mortgage brokers and builders may tack on extra fees.

To figure out your potential monthly payment, I particularly like this mortgage calculator.

And to compare different offers, here’s a nifty mortgage comparison tool from Freddie Mac.

You should be aware that you can sometimes negotiate the terms of the mortgage. Do your comparison and present the numbers to your lender of choice and see if they will match the terms.

When to Refinance Your Mortgage

As I mentioned earlier, I think this is a good time to buy a home. But with rates at lofty levels, I’m looking down the road to when I can refinance my mortgage rate to a lower number.

Economists are predicting mortgage rates will be in the 5.79%-6.4% range in 2026, and as low as 5% in 2027.

So, I’m thinking it will probably be a couple of years before I refinance my mortgage.

But having said that, as you can see from the following chart for a $300,000 mortgage, even a small drop in the interest rate can make a difference in your monthly payment.

But in addition to rates, there are a few other reasons that you may want to refinance your mortgage:

Moving from an ARM to a fixed loan will make your outflows steadier and less expensive.

Going from a 30-year to a 15-year loan so that you can build equity faster. However, unless the rate differential is great, it may make more sense to just increase your monthly principal payment so you can pay off your loan sooner and avoid refinancing costs.

Taking cash out. If you have significant equity in your home and need the money for something important—such as education or home improvements—refinancing may make sense.
The traditional thought was that refinancing was worth it if you:

• Could reduce your mortgage rate by 2%, and …
• Plan to stay in your home for five more years.

I personally think that still makes sense, for the most part, if you are refinancing strictly because of rates, but it never hurts to do the calculation to see just how much you can save. For instance, if rates fell to 5.5%, the above mortgage would fall to $1,703—no small bit of change!

But it’s important to know that refinancing your mortgage is usually not free. The cost is generally 3%-6% of your loan amount, and may include these items:

• Government recording costs
• Appraisal fees
• Credit report fees
• Lender origination fees
• Title services
• Tax service fees
• Survey fees
• Attorney fees
• Underwriting fees

You may find this refinancing costs calculator helpful.

To ensure that refinancing makes sense, add up the total costs of the refinance, then divide it by your potential monthly savings, as you see in the graphic above. That will give you the total number of months it will take until your monthly savings make up for the refinancing costs.

Note that this calculation won’t work for cash-out refinances or if you are refinancing to reduce the term of your loan.

And one last thing: When rates come down, don’t be surprised to see banks offering refinancing with no closing costs. If your lender doesn’t, ask them about it.

Should You Buy or Rent in 2025?

Now, let’s throw something else into the mix. If you’re really struggling to decide whether you should continue renting or should go ahead and buy a home this year, here is some information that may help you.

Rents are expected to increase by 2.2% this year, according to Freddie Mac—a confluence of rising demand but also rising vacancies (due to 533,000 more multifamily properties coming online). Of course, rent prices depend on which part of the country you live in, quality, square footage, and type of property. Zillow says the median rent in the U.S. right now is $2,015 per month.

In comparison, housing prices are expected to rise 1.3%-4%. In some areas of the U.S. right now, there’s not much difference in the monthly rent rate compared to a monthly mortgage payment on a similar home. That’s not the case where I live in Tennessee. Here, your monthly mortgage payment on a $350,000 home would be around $2,600. Alternatively, you can probably rent that home for $2,000.

It’s the same in high-end markets, like San Francisco, where your mortgage payment may be $8,500 while your rental on a similar property could run as low as $3,000 a month.

And if you rent, you won’t have the additional expenses that come with home ownership, including closing costs, down payment, repairs and maintenance, hazard insurance, HOA dues, and taxes, to name just a few.

So, the answer to rent vs. buy depends—on where you live, as well as your long-term plans. Do you intend to live in the area for just a year or two? If so, it doesn’t make sense to buy a home. Or, if you are just moving to the area, perhaps you want to try out a specific neighborhood before you buy.

As with all financial decisions, I recommend jotting down your options—and related costs—on paper, so that you can see which one works best for you.

Which Home Renovations Pay Off

Okay, maybe you already own a home but would like to buy a different one. But you’ve run the numbers and they’re just not working in your favor. Perhaps you should just upgrade your existing home to make it better fit your needs.

There are many renovations that will improve your home, but not all of them will pay off, in terms of an increased sales price.

According to Remodeling magazine, here are some updates and their average costs and corresponding returns that you may want to consider:

#1 Garage Door Replacement; a replacement garage door costs about $4,513 (who knew garage doors cost so much!!!), and the average return at resale is 193.9%.

#2 Entry Door Replacement; a new steel door costs about $2,355, and you’ll recover 188.1% when you sell your home. As a Realtor, I can’t stress how important the curb appeal of a good door is to making your home attractive to buyers.

#3 Manufactured Stone Veneer; 300 square feet of stone veneer costs about $11,287, and the average return at resale is 153.2%.

#4 Minor Kitchen Remodel; expect to lay out around $27,492 for this job, but you can expect to get back 96.1% at resale.

#5 Siding Replacement; fiber cement covering 1,250 square feet will cost you $20,619, and the average return at resale is 88.4%.

#6 Deck Addition; a wooden deck costs $17,615, and you’ll recover 82.9%.

#7 Bathroom Remodel; a mid-range remodel will set you back $25,251, and the average return at resale is 73.7%. If you do nothing else, please invest in an updated countertop and a taller toilet!

#8 Window Replacement; ten 3’ x 5’ vinyl windows cost about $21,264, and you’ll get back 67.1% when you sell your home. But although you may not get paid back in full, I’m telling you that your home will sell faster than it would with old, cracked, crappy windows.

#9 HVAC Conversion/Electrification for a 2,000-square-foot home is estimated at $18,800 and will pay you back 66.1%.

#10 Roofing Replacement; it will cost you $30,680 for 30 squares of asphalt shingles, and payback is 56.9%. Again, this will help sell your home faster.

#11 Major Kitchen Remodel; this complete overhaul can set you back $79,982, and the average return at resale is 49.5%.

I recommend that if you plan to stay in your home for many years, go ahead and do it if it makes you happy. But if you are planning to sell your home in the near future, this is not worth the money or time. However, if you just replace the countertops and appliances (about $10,000-$15,000), it will definitely help you sell your home faster.

#12 Upscale Bathroom Remodel; expect to pay $78,840 for “expanding an existing 35-square-foot bathroom to 100 square feet, adding a neo-angle shower with ceramic tiles and glass enclosure, soaker tub, stone countertop with double sinks, ceramic floor tiles, new cabinetry and in-floor heating.” And you’ll get back around 45.1%. Probably not worth it if you are moving soon, unless you live in a very high-end luxury home.

#13 Primary Suite Addition; a 24’ x 16’ mid-range suite addition will cost an average of $164,649, and you may see an average return at resale of 35.5%.

#14 Bathroom Addition; you’ll pay $58,586 for a 6’ x 8’ mid-range bathroom addition, and the payback is 34.7%. This can be deceiving, because the return really depends on whether the home just has one bath and the addition will push that up to two bathrooms.

Listen, although the National Association of Home Builders reports that 37% of home buyers want two bathrooms, I’m telling you as a Realtor, everyone wants at least two bathrooms; it’s almost impossible to sell a home with just one bathroom, so if you have just one bath, I say go for it!

Shocked, are you? I sure was when I looked at those prices! Fortunately, there are some upgrades that you can make that will make your home more attractive to buyers and that won’t break the bank, including:

Lightbulbs. Make sure your lightbulbs match in color temperature. It’s very distracting to see a light fixture with a combination of cool and soft whites!

Update light fixtures and fans. A couple of hundred dollars spent on a new dining room or kitchen light fixture or a primary bedroom fan will go a long way here.

Fresh coat of paint, preferably in neutral shades. And make sure you stick with the same temperatures—no mixing cool and warm color schemes. That’s too jarring and makes the buyer pause, as it’s distracting. You don’t want buyers to pause!

Upgrade your hardware. Sure, a cabinet handle can cause real sticker shock, as I found out when I replaced 78 of them in my kitchen! But a new set of handles can make your kitchen pop. Just make sure to keep the same style/color/theme throughout the house.

Pretty up your yard by taking care of your grass (seeding, fertilizing, and weed control); add hardscape or mulch to set off features; trim your shrubs (especially those around your door!); and weed your flower beds.

Power wash your driveway, porches, and sidewalks.

Spackle and paint holes and cracks in your walls and ceilings.

Clean and declutter. It’s really hard to sell a dirty home. Clean your carpets; remove spots from walls; scrub your floor and shower grout; get rid of cobwebs, etc. And remove unnecessary clutter from countertops and table tops (you don’t really need to display 50 family photos or your collection of 100 bunnies on your console table); get rid of all the stuff you have sitting on your floors—cushions, excess plants, cute little tables, etc.; and organize your garage, kitchen drawers, and closets (yes, buyers look in them)!

If you’re in the market for selling your home or just want it to feel more updated and comfortable, these are just a few ideas to make it happen.

Financing Home Renovations

Alright, you’ve decided to stay put and take on some home renovations, but cash may be short, or you just don’t want to spend your nest egg to update your home.

The good news is, you don’t have to. Financing options are available.

1. You can use your existing home equity by applying for a home equity loan or a home-equity line of credit (HELOC). If you know exactly how much your renovations will cost, a loan may be to your benefit, as costs may be lower than those of a HELOC. However, with a HELOC, you are only paying interest on the amount you borrow, so if initially, you only need part of the amount you borrowed, you may save on interest over time.

Your lender may or may not require an appraisal (depends on the amount you want to borrow), and you may or may not have to pay closing costs (this is sometimes negotiable and offered as an incentive to borrowers).

These types of loans will use your home as collateral, so make sure the money you borrow actually goes into the renovation of your home, and not to pay off credit cards, student loans, etc.

2. Cash-out refinancing. This loan also uses your home equity, and in addition to paying off your first mortgage, you can use part of your built-up equity for renovations.

Of course, you can also apply for an unsecured personal loan (takes less time than the above options, but is hard to get), or use your credit cards (not recommended, as the interest rate will no doubt be much higher than an equity loan or refinance—unless you can use a 0% card for a small home improvement that you can quickly pay back).

Isn’t it good to know that you have options? Buy, rent, or renovate—whichever you choose, I hope this information will help you make your best decision.