H
ome buyers have reacted sharply to recent mortgage rate movements: lower rates spark more sales, higher rates dampen demand. Matt Vernon, Bank of America’s head of consumer lending, outlines his 2026 forecast and how financing trends could shape the housing market.
**Key forces for 2026**
Vernon expects rates to settle in the 6‑7% band after the Fed’s recent actions and the shifts anticipated next year. He sees a modest decline toward the low‑six range, but no dramatic drop from the end‑2025 level. Housing supply will also influence affordability. Underbuilding, restrictive zoning, and homeowners locked into 3.5% loans create bottlenecks, but these are easing nationwide, especially in the South and Midwest. Buyers are adjusting their strategies to the current rate environment rather than hoping for historic lows.
**Accepting 6% as the new norm**
Clients are beginning to view 6‑7% as a reasonable rate. Although affordability remains tight, preparation helps buyers stay engaged. Many anticipate future rate cuts, giving them confidence to purchase now and refinance later if rates fall.
**Mortgage products gaining traction**
Borrowers are exploring alternatives to the 30‑year fixed mortgage that dominated the low‑rate era. Adjustable‑rate mortgages (ARMs) now account for up to 10% of current volume—the highest since 2023—because they offer lower initial payments and the option to refinance. A 15‑year fixed loan appeals to those with strong cash flow, as it typically offers the lowest rate but higher monthly payments. The 50‑year mortgage, while still niche, is being considered for its lower monthly cost, though it carries higher total interest, slow equity build‑up, and long‑term debt.
**First‑time buyer assistance**
Many prospective buyers are unaware of available programs. Vernon stresses the importance of research and speaking with lenders. Bank of America offers a 3% down‑payment grant (up to $10,000), a $7,500 home‑ownership grant for closing costs or interest buy‑down, and 3% down‑payment mortgages, totaling up to $17,500 in assistance. Local grants and municipal programs can further bridge the gap.
**Refinancing outlook**
The late‑2025 rate decline spurred a refinance uptick, mainly from borrowers with higher‑rate loans over the past 2½ years. This trend will continue modestly, but a significant refinance boom would require a larger rate drop, as most lender portfolios sit at 5% or lower.
**Self‑employed borrower flexibility**
Lenders are increasingly accommodating self‑employed applicants. Variable income may prompt larger down payments or additional documentation, but access is improving. Working with a knowledgeable lender remains crucial.
**Technology’s role**
AI and digital tools streamline the mortgage process, reducing paperwork and speeding closings. Over the next three to five years, technology will become integral, making the traditionally complex mortgage journey more efficient and potentially cheaper.
**Advice for 2026 buyers**
1. **Start early** – Begin preparation well before you intend to buy.
2. **Educate yourself** – Understand credit, debt, and the mortgage process.
3. **Improve credit health** – A strong score and low debt‑to‑income ratio enhance qualification and rates.
4. **Build savings** – Allocate funds for down payment, closing costs, and an emergency reserve for repairs.
5. **Consider insurance and maintenance** – Factor these into your monthly budget.
6. **Get pre‑qualified or pre‑approved** – This positions you to act quickly when a suitable home appears, especially in competitive markets.
By following these steps and leveraging available assistance programs, buyers can navigate the 2026 market more confidently and secure favorable financing terms.
